IMPACT OF ECONOMIC FREEDOM ON COMPETITIVE ADVANTAGE OF THE COUNTRY IN TRADE: IMPLEMENTATION IN OECD COUNTRIES

In the economics literature, foreign trade is considered to have a positive impact on the country and indirectly to the World welfare. While multinational companies are trying to discover countries that have the most valuable production factors, so does countries are trying to attract foreign direct investment to their countries. There are various factors that affect the competitiveness of the countries in foreign trade. The economic freedoms mostly implies the ease of doing business abroad are seen as a important variable. In the light of theoretical studies, countries with high economic freedom are expected to have a competitive advantage in international trade. In this study, theoretical discussions on the subject were explained and empirically validated. For this purpose, economic data from the countries within OECD for the period 1995-2015 were used. Based on the level of economic freedom and development, OECD countries are divided into two categories as high and low scores countries. In this study, second-generation panel unit root and cointegration tests were used between the economic freedoms index prepared by the Heritage Foundation and the Current Balance/GDP, Foreign Trade Volume/GDP and Foreign Direct Investments/GDP data published by WDI, OECDSTAT and UNCTAD. As for countries with high scores, there was a correlation between the economic freedom and Current Balance/GDP and Foreign Trade Volume/GDP, while there was not any correlation with the ratio of Foreign Direct Investment/GDP. However, for countries with relatively low scores, economic freedom have been found to have an integrated relationship with all three variables.