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Free Trade and Economic Growth: A Critical Assessment of the Evidence

Arnoldsson, Oskar (2005)
Department of Economics
Abstract
This paper surveys the recent literature on free trade and economic growth. While theory suggests many potential linkages, empirical evidence from cross-country and panel growth regressions remains inconclusive. Measures of single instruments of trade policy, such as the average tariff rate, are typically weak in explaining differences in growth but may underestimate the true level of protectionism. Aggregated measures of trade policy, on the other hand, are often highly significant in a standard growth regression but run the risk of capturing effects of other policies as well. One important goal of this survey is to compare area four of the Economic Freedom of the World index, “Freedom to exchange with foreigners”, with other indicators... (More)
This paper surveys the recent literature on free trade and economic growth. While theory suggests many potential linkages, empirical evidence from cross-country and panel growth regressions remains inconclusive. Measures of single instruments of trade policy, such as the average tariff rate, are typically weak in explaining differences in growth but may underestimate the true level of protectionism. Aggregated measures of trade policy, on the other hand, are often highly significant in a standard growth regression but run the risk of capturing effects of other policies as well. One important goal of this survey is to compare area four of the Economic Freedom of the World index, “Freedom to exchange with foreigners”, with other indicators since this index has historically not been used as a measure of trade policy in the empirical growth literature. This index can potentially solve some of the measurement and methodological problems that the literature still faces, but only further empirical testing can fully determine its strengths. (Less)
Please use this url to cite or link to this publication:
@misc{1334880,
  abstract     = {{This paper surveys the recent literature on free trade and economic growth. While theory suggests many potential linkages, empirical evidence from cross-country and panel growth regressions remains inconclusive. Measures of single instruments of trade policy, such as the average tariff rate, are typically weak in explaining differences in growth but may underestimate the true level of protectionism. Aggregated measures of trade policy, on the other hand, are often highly significant in a standard growth regression but run the risk of capturing effects of other policies as well. One important goal of this survey is to compare area four of the Economic Freedom of the World index, “Freedom to exchange with foreigners”, with other indicators since this index has historically not been used as a measure of trade policy in the empirical growth literature. This index can potentially solve some of the measurement and methodological problems that the literature still faces, but only further empirical testing can fully determine its strengths.}},
  author       = {{Arnoldsson, Oskar}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Free Trade and Economic Growth: A Critical Assessment of the Evidence}},
  year         = {{2005}},
}