THE IMPACT OF INTERNATIONAL TRADE FREEDOM ON ECONOMIC GROWTH: EMPIRICAL EVIDENCE OF THE WESTERN BALKANS COUNTRIES

Abstract

The influence of international trade freedom on economic growth is a significant factor. International trade promotes trade freedom (Unger, 2007), and most studies show the positive impacts of trade freedom on economic growth (Mercan et al., 2013). In this study, we search for the effects of international trade freedom on the Western Balkan countries’ economic growth using the Fraser Institute annual data from 2000 to 2021. The paper consists of panel data, and the results are analyzed with the following models: pooled ordinary least squares (OLS), fixed effect, random effect, and generalized method of moments (GMM). Our findings show a positive relationship between the freedom of international trade and economic growth. High tariffs on international commerce, trade barrier control, and domestic trade freedom all impacted growth; on the other hand, tariffs and trade barrier regulations harm economic growth. The gross domestic product (GDP) coefficient per capita at lag one is 0.9535, implying that a unit increase in GDP per capita at lag one increases GDP per capita by 0.9535. The ultimate conclusion is that more trade liberalization with a preference for exports, institutional reforms, foreign direct investment (FDI) inflows, structural improvements, and strengthened collaboration with the European Union have a long-term influence on the Western Balkans nations’ quicker economic growth.