Benefits to Trade

Over at Cafe Hayek, Don Boudreaux shares some charts I made for him as his RA.  One of the charts is the Fraiser Institute’s Freedom to Trade Internationally Index compared to GDP per capita (a proxy for individual wealth) from the World Bank.  In the charts Don has, there is a linear regression line.  Below, I have the same graph, but with an exponential trend line:

freedom-to-trade

This trend line fits better than the linear one.  This suggests an interesting relationship: the relationship between the freedom to trade and individual wealth is exponentially positive.  In other words, the more free the people of a nation is to trade, the faster and faster their wealth grows!  The implication of this is even marginal tariffs could have a substantial effect on economic activity and wealth.

Other than putting together the graph, I haven’t played around with the data too much, something which I aim to remedy in the near future.  But, at a first look, this suggests a strong positive relationship between trade and economic well-being, and certainly hurts the case that trade, as Trump has put it, is “beating us to a pulp.”

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