Economic Freedom of the World

Economic Freedom of the World is an annual survey published by the libertarian Canadian think tank Fraser Institute.[1] The survey attempts to measure the degree of economic freedom in the world's nations. It has been used in peer-reviewed studies some of which have found a range of beneficial effects of more economic freedom.[2]

This article is about annual survey published by the Fraser Institute. For other indices, see Indices of economic freedom.
Economic Freedom of the World
AuthorsJames Gwartney, Robert A. Lawson, Joshua C. Hall, Ryan Murphy, Robbie Butler, John Considine, Hugo J. Faria, Rosemarie Fike, Fred McMahon, Hugo M. Montesinos-Yufa, Dean Stansel, Meg Tuszynski[1]
Cover artistHeather Jalbout[1]
CountryCanada[1]
LanguageEnglish, French, Spanish, Bosnian, German, Italian[1]
PublisherFraser Institute[1]
Publication date
2016[1]
ISBN978-0-88975-408-9 (2016 edition)
OCLC45197922
LC ClassHC10 .E3746 HB95E36[1]
Websitefreetheworld.com[1]

History

One of the earliest measures of economic freedom was developed by Freedom House, which has done extensive work on the measurement of political and cultural freedom. This measure incorporated a range of indicators including freedom to establish a business and freedom of union organisation.[3]

Partly in response to dissatisfaction with the Freedom House index from advocates of a libertarian or market liberal viewpoint, Milton Friedman and Michael Walker of the Fraser Institute hosted a series of conferences on economic freedom. Eventually this resulted in a report on worldwide economic freedom, Economic Freedom of the World. Later the Heritage Foundation and the Wall Street Journal created another similar index, the Index of Economic Freedom.[4]

Method

The participants in the conferences reached a consensus that the cornerstones of economic freedom are: personal choice rather than collective choice, voluntary exchange coordinated by markets rather than allocation via the political process, freedom to enter and compete in markets, protection of persons and their property from aggression by others.[5] The 2005 report states "When the functions of the minimal state—protection of people and their property from the actions of aggressors, enforcement of contracts, and provision of the limited set of public goods like roads, flood control projects, and money of stable value—are performed well, but the government does little else, a country’s rating on the EFW summary index will be high. Correspondingly, as government expenditures increase and regulations expand, a country’s rating will decline."[5] In practice, the index measures: size of government (expenditures, taxes, and enterprises, legal structure), security of property rights, access to sound money, freedom to trade internationally, and regulation of credit, labor, and business.[5] The report uses 42 distinct variables, from for example the World Bank, to measure this. Some examples: tax rates, degree of juridical independence, inflation rates, costs of importing, and regulated prices. Each of the 5 areas above is given equal weight in the final score.[5]

Research
Charts showing economic freedom, as defined in Economic Freedom of the World, and various other indicators. The red bars shows nations with less economic freedom, the green bars those with more.

Economic freedom has been shown to correlate strongly with higher average income per person, higher income of the poorest 10%, higher life expectancy, higher literacy, lower infant mortality, higher access to water sources and less corruption. The share of income in percent going to the poorest 10% is the same for both more and less economically free countries.[6]

The people living in the top one-fifth of the most free countries enjoy an average income of $23,450 and a growth rate in the 1990s of 2.56 percent per year; in contrast, the bottom one-fifth in the rankings had an average income of just $2,556 and a -0.85 percent growth rate in the 1990s. The poorest 10 percent of the population have an average income of just $728 in the least free countries compared with over $7,000 in the most free countries. The life expectancy of people living in the most free nations is 20 years longer than for people in the least free countries.[7]

Higher economic freedom, as measured by both the Heritage and the Fraser indices, correlates strongly with higher self-reported happiness[8] and is significant in preventing wars. Economic freedom is around 54 times more effective than democracy (as measured by Democracy Score) in diminishing violent conflict.[9]

Regarding environmental health, studies have found no or a positive effect. More important may be the Kuznets curve. Most environmental health indicators, such as water and air pollution show an inverted U-shape. Meaning in the beginning of economic development, little weight is given to environmental concerns, raising pollution along with industrialization. After a threshold, when basic physical needs are met and a middle class is established, interest in a clean environment rises, reversing the trend.[10]

Studies show that more economic freedom is the cause of beneficial effects and that Economic Freedom of the World was used for most of the research, partly because Index of Economic Freedom only goes back to 1995 and because it uses more subjective variables.[10]

Influence

Hundreds of peer-reviewed articles have used the index and it has been used in economic research, political science, and environmental research.[11] The Economic Freedom of the World index has been more widely used than any other measure of economic freedom, because of its coverage of a longer time period.[12] In 2016 the report was cited in 412 independent research journals.[13] In 2016 and 2017 Free Malaysia Today and National Review quoted the report.[14]

Criticisms

The correlation between economic freedom and growth has been criticized by studies. De Haan and Siermann find that the relationship is not robust.[15] Heckelman and Stroup argue that the weighting procedure used in the construction of the index is arbitrary.[16] They examine the components of the index individually and find that many—including a low top marginal tax rate—are negatively, rather than positively correlated with economic growth. A frequent criticism is that China, and other developing nations, have high growth rates but relatively low economic freedom. Developing nations can have higher growth rates than developed nations, as they have cheap labor and can import investment, technology and organizational skills from rich countries.

When examining the subcomponents of the index, any positive effect that a low level of taxes might have is more disputed than the importance of rule of law, lack of political corruption, low inflation, and functioning property rights. Many northern European nations such as Iceland (#23), Denmark (#13), Finland (#21) and Sweden (#35), have extensive welfare states, which are strongly opposed by advocates of laissez-faire. It is argued these countries have less regulation than most others, and research using the Ease of Doing Business Index suggests that the effect of business regulations is more important than government consumption.[17] The Global Competitiveness Report looks at several other factors that affect economic growth such as infrastructure, health, and education.

Although the World Bank does not believe that laissez-faire policies, if they allow large inequalities of wealth to develop, are an effective way to achieve this goal, it is a strong supporter of the importance of economic growth for reducing poverty. It argues that an overview of many studies shows that: growth is fundamental for poverty reduction, and in principle growth as such does not seem to affect inequality, growth accompanied by a more egalitarian distribution of wealth is better than growth alone, high initial income inequality is a brake on poverty reduction, poverty itself is also likely to be a barrier for poverty reduction, and wealth inequality seems to predict lower future growth rates.[18] In 2011 the IMF Economic Review published an article that found countries with higher economic freedom and more liberal credit market regulation suffered more in output growth during the late-2000s financial crisis.[19] In 2014 a working paper published by the International Labour Organization said some of the methodology used in the Rigidity of Employment index sub-components, was not useful.[20]

2017 ratings in 2019 Annual Report
Map showing summary index scores of countries according to 2017 data from the 2019 Annual Report
  >8
  7.5–8
  7–7.5
  6.5–7
  6–6.5
  5.5–6
  5–5.5
  <5
  Data unavailable

Below are the ratings of countries for 2017, based on the 2019 Annual Report.[21] In 2017, Hong Kong and Singapore were in first and second place respectively; the next highest-scoring countries are New Zealand, Switzerland, United States, Ireland, United Kingdom, Canada, Australia and Mauritius. The lowest-scoring countries are Iraq, Republic of the Congo, Egypt, Syria, Democratic Republic of the Congo, Angola, Algeria, Sudan, Libya, and lastly, Venezuela.

RankCountrySummary index
1 Hong Kong8.91
2 Singapore8.71
3 New Zealand8.50
4  Switzerland8.40
5 United States8.19
6 Ireland8.13
7 United Kingdom8.09
8 Canada8.08
9 Australia8.07
9 Mauritius8.07
11 Malta7.97
12 Georgia7.94
13 Chile7.89
13 Denmark7.89
13 Estonia7.89
16 Lithuania7.88
17 Japan7.86
17 Luxembourg7.86
19 Taiwan7.85
20 Germany7.82
21 Finland7.80
22 Czech Republic7.75
23 Iceland7.74
24 Latvia7.73
25 Netherlands7.72
26 Austria7.71
27 Armenia7.70
28 Cyprus7.68
28 Romania7.68
30 Albania7.67
31 Panama7.66
32 Norway7.62
33 South Korea7.59
34 Guatemala7.57
35 Sweden7.56
36 Spain7.55
37 Bulgaria7.54
38 Israel7.53
39 Portugal7.52
40 Belgium7.51
40 Slovakia7.51
42 Peru7.49
43 Cambodia7.44
43 Jordan7.44
45 Mongolia7.43
46 Costa Rica7.41
46 Italy7.41
48 Uganda7.39
49 Botswana7.37
50 Bahrain7.35
50 France7.35
52 Malaysia7.34
53 Philippines7.32
54 Hungary7.27
54 Indonesia7.27
56 Croatia7.26
56 Rwanda7.26
58 Bahamas7.25
59 Poland7.24
60 Gambia7.23
61 Jamaica7.17
61 United Arab Emirates7.17
63 Cape Verde7.16
63 El Salvador7.16
65 Honduras7.16
65 Seychelles7.16
67 Slovenia7.15
68 Kazakhstan7.10
69 Qatar7.07
70 Kenya7.05
70 Uruguay7.05
72 Paraguay7.03
73 Macedonia7.02
74 Nicaragua7.01
75 Lebanon6.97
76 Mexico6.93
77 Dominican Republic6.92
77 Kyrgyzstan6.92
79 India6.91
80 Serbia6.89
81 Nigeria6.86
81 Thailand6.86
83 Montenegro6.84
83 Zambia6.84
85 Belize6.78
85 Russia6.78
87 Bhutan6.77
87 Tanzania6.77
89 Oman6.76
90 Fiji6.74
91 Trinidad and Tobago6.70
92 Bosnia and Herzegovina6.69
92 Morocco6.69
94 Colombia6.68
95 Laos6.67
95 Turkey6.67
97 Moldova6.66
98 Suriname6.65
99 Belarus6.64
100 Brunei6.62
101 South Africa6.61
102 Greece6.59
103 Ghana6.58
104 Sri Lanka6.57
105 Liberia6.56
106 Namibia6.53
107 Saudi Arabia6.52
107 Swaziland6.52
109 Lesotho6.50
110 Haiti6.49
110   Nepal6.49
112 Barbados6.45
113 China6.42
114 Kuwait6.41
115 Papua New Guinea6.36
116 Azerbaijan6.34
117 Guyana6.32
118 Ecuador6.28
119 Vietnam6.27
120 Brazil6.23
121 Togo6.21
122 Tunisia6.20
123 Bangladesh6.18
124 Burundi6.17
124 Senegal6.17
126 Bolivia6.14
126 Madagascar6.14
128 Mauritania6.11
129 Benin6.08
130 Burkina Faso6.07
131 Malawi6.06
132 Tajikistan6.05
133 East Timor5.99
134 Ivory Coast5.97
135 Ukraine5.96
136 Mali5.91
136 Pakistan5.91
138 Gabon5.88
139 Guinea5.86
140 Cameroon5.84
140 Yemen5.84
142 Niger5.83
143 Ethiopia5.72
143 Iran5.72
145 Zimbabwe5.69
146 Argentina5.67
147 Myanmar5.63
148 Sierra Leone5.63
149 Mozambique5.60
150 Chad5.42
151 Central African Republic5.23
151 Guinea-Bissau5.23
153 Iraq5.21
154 Republic of the Congo5.08
155 Egypt5.05
155 Syria5.05
157 Democratic Republic of the Congo5.00
158 Angola4.83
159 Algeria4.77
160 Sudan4.67
161 Libya4.45
162 Venezuela2.58

Past reports

Trend

The Economic Freedom of the World 2005 report stated that the world economic freedom score has grown considerably over the last few decades. By its measure, the average score has increased from 5.17 in 1985 to 6.4. Of the nations in 1985, 95 nations increased their score, seven saw a decline, and six were unchanged.[22]


2013 ratings in 2015 Annual Report

Economic Freedom Ratings for 2013,[23] including 157 countries and 119 positions which may be shared by two or more countries.

RankCountrySummary
index		Previous rank [24]Difference
1 Hong Kong8.978.97 0
2 Singapore8.528.73 0.21
3 New Zealand8.198.49 0.30
4  Switzerland8.168.30 0.14
5 United Arab Emirates8.158.07 0.08
6 Mauritius8.088.01 0.07
7 Jordan7.937.81 0.12
8 Ireland7.907.66 0.24
9 Canada7.897.93 0.08
10 Chile7.877.87 0
11 United Kingdom7.877.85 0.02
12 Australia7.837.88 0.05
13 Georgia7.837.61 0.22
14 Qatar7.777.62 0.15
15 Taiwan7.767.77 0.01
16 United States7.737.73 0
17 Romania7.697.32 0.17
18 Armenia7.677.62 0.05
19 Finland7.617.98 0.37
20 Lithuania7.617.61 0
21 Malta7.617.65 0.04
22 Denmark7.587.78 0.20
23 Estonia7.587.76 0.18
24 Bahrain7.557.93 0.38
25 Costa Rica7.537.11 0.42
26 Japan7.527.50 0.02
27 Luxembourg7.517.49 0.02
28 Norway7.517.56 0.05
29 Germany7.507.68 0.18
30 Netherlands7.487.57 0.09
31 Austria7.467.59 0.13
32 Kuwait7.467.22 0.24
33 Guatemala7.457.21 0.14
34 Rwanda7.437.46 0.03
35 Latvia7.427.31 0.11
36 Portugal7.427.34 0.09
37 Bahamas7.407.40 0
38 Nicaragua7.407.23 0.17
39 Israel7.387.26 0.12
40 South Korea7.387.50 0.22
41 Peru7.347.64 0.30
42 Bulgaria7.337.26 0.07
43 Czech Republic7.337.25 0.18
44 Jamaica7.337.12 0.21
45 Sweden7.337.59 0.16
46 Uganda7.307.10 0.20
47 Poland7.297.20 0.09
48 Slovakia7.297.46 0.17
49 Honduras7.277.21 0.06
50 Panama7.277.08 0.19
51 Spain7.277.53 0.26
52 Belgium7.267.36 0.10
53 Cambodia7.267.02 0.24
54 Kazakhstan7.266.84 0.42
55 El Salvador7.257.03 0.22
56 Hungary7.257.59 0.34
57 Dominican Republic7.237.13 0.10
58 Malaysia7.227.06 0.16
59 Oman7.217.31 0.10
60 Macedonia7.197.05 0.14
61 Mongolia7.197.06 0.13
62 Albania7.187.27 0.09
63 Brunei7.187.05 0.13
64 Montenegro7.187.26 0.08
65 Uruguay7.187.35 0.17
66 Kenya7.166.81 0.35
67 Philippines7.147.21 0.07
68 Botswana7.137.25 0.12
69 Italy7.136.85 0.28
70 France7.127.38 0.26
71 Gambia7.126.98 0.14
72 Papua New Guinea7.116.96 0.15
73 Seychelles7.07N/A-
74 Trinidad and Tobago7.076.95 0.12
75 Cyprus7.037.72 0.69
76 Indonesia7.016.90 0.11
77 Lebanon7.017.41 0.40
78 Bosnia and Herzegovina6.986.67 0.25
79 Cape Verde6.976.24 0.69
80 Zambia6.977.10 0.13
81 Saudi Arabia6.957.14 0.19
82 Tanzania6.926.65 0.27
83 Turkey6.927.06 0.14
84 Croatia6.917.01 0.10
85 Greece6.876.83 0.24
86 Iceland6.877.37 0.50
87 Bhutan6.86N/A-
88 Fiji6.867.10 0.14
89 Paraguay6.856.78 0.07
90 Barbados6.836.96 0.13
91 Haiti6.836.56 0.33
92 Tajikistan6.816.01 0.80
93 Mexico6.796.64 0.15
94 Swaziland6.796.56 0.23
95 Suriname6.776.29 0.48
96 South Africa6.746.80 0.06
97 Kyrgyzstan6.736.51 0.22
98 Madagascar6.716.37 0.34
99 Russia6.696.55 0.14
100 Namibia6.686.39 0.38
101 Serbia6.656.46 0.19
102 Belize6.646.82 0.18
103 Moldova6.636.86 0.23
104 Thailand6.636.64 0.01
105 Sri Lanka6.576.66 0.09
106 Colombia6.566.61 0.05
107   Nepal6.566.19 0.36
108 Bolivia6.526.36 0.16
109 Morocco6.466.56 0.10
110 Vietnam6.466.23 0.23
111 China6.446.22 0.22
112 Nigeria6.446.21 0.23
113 Slovenia6.446.59 0.15
114 India6.436.34 0.09
115 Bangladesh6.426.33 0.09
116 Tunisia6.396.87 0.52
117 Lesotho6.366.35 0.01
118 Azerbaijan6.346.30 0.34
119 Brazil6.346.51 0.17
120 Cameroon6.345.94 0.40
121 Egypt6.346.36 0.02
122 Senegal6.325.97 0.35
123 Mali6.295.95 0.74
124 Guyana6.286.34 0.06
125 Pakistan6.286.34 0.06
126 Yemen6.286.31 0.03
127 Timor-Leste6.276.30 0.03
128 Ghana6.206.71 0.51
129 Ukraine6.206.16 0.04
130 Guinea-Bissau6.125.68 0.44
131 Burkina Faso6.105.94 0.16
132 Sierra Leone6.086.32 0.24
133 Benin6.055.95 0.10
134 Ivory Coast6.035.76 0.37
135 Ecuador5.995.85 0.14
136 Malawi5.876.30 0.43
137 Mozambique5.875.63 0.24
138 Burundi5.855.26 0.59
139 Mauritania5.796.42 0.63
140 Niger5.795.60 0.19
141 Gabon5.725.73 0.01
142 Togo5.715.57 0.14
143 Ethiopia5.685.47 0.21
144 Belgian Congo5.655.28 0.37
145 Guinea5.62N/A-
146 Myanmar5.564.08 1.48
147 Iran5.436.05 0.22
148 Angola5.375.17 0.20
149 Zimbabwe5.334.59 0.34
150 Central African Republic5.295.26 0.03
151 Algeria5.205.32 0.12
152 Argentina5.205.69 0.49
153 Syria5.19N/A-
154 Chad5.134.98 0.15
155 Libya5.11N/A-
156 Republic of the Congo4.724.57 0.15
157 Venezuela3.233.93 0.70

A related index for Chinese provinces is followed by both Chinese scholars and policy makers. There is also a network of institutions in 59 different nations that use the index to promote free market ideas.[25]

See also

References
  1. Gwartney, James; Lawson, Robert A.; Hall, Joshua C.; Murphy, Ryan; Butler, Robbie; Considine, John; Faria, Hugo J.; Fike, Rosemarie; McMahon, Fred; Montesinos-Yufa, Hugo M.; Stansel, Dean; Tuszynski, Meg (Sep 15, 2016). Economic Freedom of the World: 2016 Annual Report. Fraser Institute. ISBN 978-0-88975-408-9. OCLC 45197922.; ISSN 1482-471X; OCLC 773250104
  2. "Published Work Using Economic Freedom of the World Research". Archived from the original on 2011-03-20.
  3. "Cuba After Fidel – What Next?". Voice of America. October 31, 2009. Archived from the original on October 14, 2012. Retrieved October 13, 2012.
  4. "Moroccan Liberalization Making Progress". Financial Tribune Daily. April 30, 2017. Retrieved 1 May 2017.
  5. Dolan, Ed (April 27, 2017). "Quality of Government, Not Size, Is the Key to Freedom and Prosperity". Niskanen Center. Retrieved 1 May 2017.
  6. Economic Freedom of the World: 2004 Annual Report (PDF). 2004. Archived from the original (PDF) on March 16, 2016.
  7. Lawson, Robert A. (July 1, 2002). "Economic Freedom Needed To Alleviate Poverty". Archived from the original on October 6, 2006.
  8. In Pursuit of Happiness Research. Is It Reliable? What Does It Imply for Policy? Archived 2011-02-19 at the Wayback Machine The Cato institute. April 11, 2007
  9. Chapter2: Economic Freedom and Peace Archived 2008-10-16 at the Wayback Machine, Economic Freedom of the World 2005
  10. Berggren, Niclas. The Benefits of Economic Freedom: A Survey (PDF). The Ratio Institute. SSRN 888503. Archived from the original (PDF) on June 4, 2007.
  11. Hundreds of peer-reviewed articles:
    "Economic Freedom". Google Scholar. Retrieved 5 May 2017.
  12. Dawson, John W. (May 2007). "The Empirical Institution-Growth Literature: Is Something Amiss at the Top?". 4 (Issue 2). pp. 184–96.
  13. "Citations in 2016 Professional Literature of the Fraser Institute's Economic Freedom Research" (PDF). Fraser Institute. pp. 1–36. Retrieved 2 April 2017.
  14. See:
    Wan, Saiful Wan Jan (March 29, 2017). "Wrong to oversimplify China's investments". Free Malaysia Today. Archived from the original on Mar 29, 2017.
    Tanner, Michael (September 21, 2016). "In Comparative Economic Freedom, the U.S. Is in 16th Place". National Review. Archived from the original on September 22, 2016.
  15. Further Evidence on the Relationship Between Economic Freedom and Economic Growth, Public Choice. 95: 363–80.
  16. Jac C. Heckelman, Michael D. Stroup (2000), ‘Which Economic Freedoms Contribute to Growth?’, Kyklos, 53(4), 527–44.
  17. "Knowledge Resources". World Bank.
  18. "The Poverty-Growth-Inequality Link". World Bank.
  19. Giannone, Domenico; Lenza, Michele; Reichlin, Lucrezia (2011). "Market Freedom and the Global Recession". IMF Economic Review. 59 (1).
  20. Aleksynska, Mariya; Cazes, Sandrine (2014). "Comparing indicators of labour market regulations across databases: A post scriptum to the employing workers debate" (pdf). Conditions of Work and Employment Series. 50. Geneva: International Labour Office. ISSN 2226-8944. Retrieved 27 July 2017. This paper offers a critical overview of labour market regulations’ indicators developed by the World Economic Forum, the IMD, and the Fraser Institute. [Abstract] Cite journal requires |journal= (help)
  21. "2019 ANNUAL REPORT: Economic Freedom of the World" (PDF). Fraser Institute. Retrieved 9 January 2020.
  22. Huntington, Donald M. (May 18, 2009). Advanced Seminar in Business. William Jewell College.
  23. "Economic Freedom of the World 2015" (PDF). Archived from the original (PDF) on 2015-09-28. Retrieved 2015-09-27.
  24. 2011 report published in 2013: Economic Freedom of the World in 2011 Archived 2016-03-04 at the Wayback Machine
  25. Gwartney, James D.; Lawson, Robert A. (September 18, 2003). The Impact of the Economic Freedom of the World Index (PDF). Mont Pelerin Society. Archived from the original (PDF) on September 7, 2003.
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