Economic freedom and trade flows

Belay Seyoum and Juan Ramirez

Journal of Economic Studies, 2019, vol. 46, issue 4, 985-1006

Abstract: Purpose - Economic freedom is the fundamental right of every person in a free society to control his/her own labor and property without government intervention beyond what is necessary to protect and maintain freedom itself. The purpose of this paper is to examine the association between economic freedom, inward foreign direct investment (FDI) and trade flows. Design/methodology/approach - The authors test a moderated mediation model of the effects of economic freedom on trade flows with the objective of exploring the mediation effects of FDI and the moderating effects of government stability. Findings - Based on a sample of 155 countries from different geographical areas, the study shows that economic freedom is associated with inward FDI, which, in turn, predicted trade flows. Furthermore, government stability moderated the relationship between economic freedom and FDI. Originality/value - This study goes beyond the traditional focus on the macro determinants of trade flows and explores the link between economic freedom and trade flows, and the roles of inward FDI and political stability in the context of this relationship. It also provides a novel methodological approach to examine this relationship.

Keywords: Foreign direct investment (FDI); Economic freedom; Trade flows; Government stability (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:jespps:jes-12-2017-0378

DOI: 10.1108/JES-12-2017-0378

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