Asymmetric Effects of Economic Freedom on International Trade Flows

Abstract

We employ a gravity equation to estimate the effects of economic freedom on U.S. consumer exports and imports for the years 1999 and 2000. Using the newly updated Fraser Institute’s Economic Freedom of the World Index, we find that increased economic freedom in the rest of the world would increase the overall U.S. trade volume. We also consider whether imports and exports are affected asymmetrically with respect to income, transaction costs, and economic freedom. We find considerable differences in how these variables affect imports and exports of consumer goods. Our results also give some insight into how economic freedom might affect the U.S. trade position.