Free Trade, Economic Freedoms and Prosperity

Abstract

This study discusses the arguments for and against free trade as one of the main pillars of free market economy and highlights the relationship between economic freedoms and major indicators of economic prosperity. One can put forward many theoretical arguments regarding the superiority of free trade and openness over protectionism and inward-looking policies. What is even better is to support these arguments with empirical evidence. There is a growing body of empirical evidence indicating a positive correlation between economic freedoms and the major indicators of wealth and prosperity (i.e. per capita income, economic growth, foreign direct investments, access to clean water, infant mortality, environmental performance, political rights and civil liberties). The main policy implication of these findings is that those countries which would like to reduce poverty and reach higher levels of prosperity should take economic freedoms seriously and strengthen the institutions of free trade, sound money, property rights, limited government, and sound legal system.