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How Free Trade Left America Behind

Posted December 21, 2016

Under Economic Issues, International Trade Issues

(David Floyd – Investopedia)

For its latest cover story, posted online Saturday, Barron’s commissioned Southern Methodist University economist Robert Lawson to study the relationship between trade and economic prosperity, measured in terms of per capita gross domestic product (GDP), GDP growth and per capita income among the lowest-earning tenth of the population.

Lawson began with the Fraser Institute’s 2014 rankings of “freedom to trade internationally,” which ranks countries on a scale from an utterly protectionist 0 to a perfectly open 10, characterized by “low tariffs, easy clearance and efficient administration of customs, a freely convertible currency, and few controls on the movement of physical and human capital.” He sorted the 159 countries in the ranking into quartiles and looked at how these baskets of nations performed according to selected measures of prosperity.

The free-traders came out on top according to all three metrics (although in fairness, correlation does not necessarily mean causation). The top quartile had 2014 GDP per capita – that is, economic output per person – around twice as high the second quartile. Year-over year GDP growth from 1990 to 2014 was higher for the freest-trading quartile than any other. In an apparent rebuke to those who argue that free trade fuels inequality, annual per capita income among the lowest-earning 10% of the population was around three times higher in the first quartile than in the second. Click here to read more.