How Does Economic Freedom Affect International Trade in Services?

Using the Economic Freedom of the Index compiled by the Fraser Institute and, for a robustness check the Heritage Foundation Economic [Freedom Index. this paper investigates the impact of economic freedom on bilateral services trade at the sectoral level. To accomplish this purpose, using the standard gravity model, the paper estimates the determinants of bilateral services trade for nine different sub-sectors between the United States and 28 different trading partners for the period of 1992-2003. Me result shows that the United States trades more of most business-related services with countries that enjoy freer economic activities. The result is robust with respect to many different specifications of the gravity model.