Effect of economic freedoms on export sophistication: An analysis on OECD countries

Economic freedom allows economic actors to do business more effectively, contributing to the development of factors such as innovation, education, investment, infrastructure and market access. These positive contributions of economic freedoms to countries also positively affect export sophistication. The objective of the study is to empirically analyze the impact of overall economic freedom and its subcomponents (rule of law, public sector size, regulatory effects and market access) on export sophistication. Firstly, PRODY index, which determines the productivity value of export product groups, and EXPY index, which represents export sophistication, are calculated. Generalized Method of Moments (GMM) was used as the method. Annual data for OECD countries for the period 2005-2019 were used in the study. According to the estimation results, economic freedom has a positive effect on export sophistication in general. When the effect of economic freedom subcomponents on export sophistication is analyzed, rule of law, public sector size and market access yield positive and significant results. The estimation results of regulatory effects are statistically insignificant. Keywords: Export Sophistication, Economic Freedom, GMM