Transcript Economic Freedom of the World: Annual Report 2004

Economic Freedom of the
World: 2008 Annual Report

Fraser Institute

September 16, 2008
THANK YOU FOR COMING!

The key to changing policy in the world
is changing the climate of opinion about
what works and what does not work in
encouraging world development
 The key to changing the climate of
opinion is providing the widest possible
audience with good information about
the causes of development and underdevelopment
Economic Freedom of the
World Project

Objective: find a way to measure economic
freedom and explore the connection between it
and other indicators
 20 year project
 Led by the late Milton Friedman, Rose Friedman
and Michael Walker
 Involved 60 of the world’s top scholars, including
three Nobel Laureates: Milton Friedman, Douglass
North, and Gary Becker
What is the Economic
Freedom of the World Index?
 An
annual compilation of data representing factors
which make a country economically free
 Authors: James Gwartney and Robert Lawson
 A compendium of 42 government policies affecting
economic freedom based on objective data or
independent surveys
 A ranking of 141 countries representing 95% of the
world’s population according to the extent to which
they permit their citizens to be economically free
 Now a collaboration of Institutes in 76 different
nations and territories
What is Economic Freedom?
Individuals have economic freedom when
property they acquire without the use of force,
fraud, or theft is protected from physical invasions
by others and they are free to use, exchange, or
give their property as long as their actions do not
violate the identical rights of others. An index of
economic freedom should measure the extent to
which rightly acquired property is protected and
individuals are engaged in voluntary transactions.
James Gwartney et al. 1996
Components of the Economic
Freedom of the World Index

Size of government and taxation
 Private property and the rule of law
 Soundness of money
 Trade regulation and tariffs
 Regulation of business, labour and capital
markets
Talk about making a difference …
Member Institutes of Economic Freedom of
the World Network
Albanian Center for Economic Research
(ACER), Albania
Fundación Libertad, Argentina
Institute of Public Affairs, Australia
TIGRA®, Austria
Center for Economic and Political Research,
Azerbaijan
The Nassau Institute, Bahamas
Making Our Economy Right (MOER),
Bangladesh
Scientific Research Mises Center, Belarus
Centre for the New Europe, Belgium
Fundacion Libertad y Democracia (FULIDE),
Bolivia
Instituto Liberal do Rio de Janeiro, Brazil
Institute for Market Economics, Bulgaria
Le Centre des Affaires Humaines (CEDAH),
Burkina Faso
Cambodia Institute of Development Study,
Cambodia
The Fraser Institute, Canada
Instituto Libertad y Desarrollo, Chile
Instituto Libertad y Progreso (ILP), Colombia
Instituto para la Libertad y el Análisis de
Políticas, Costa Rica
The Institute of Economics, Croatia
Liberální Institut, Czech Republic
Center for Politiske Studier (CEPOS),
Denmark
Fundación Economía y Desarrollo Inc.,
Dominican Republic
Instituto Ecuatoriano de Economía Política,
Ecuador
International University Audentes, Audentes
University, Estonia
Association pour la Liberté Economique et le
Progrès Social (ALEPS), France
Society for Disseminating Economic Knowledge:“New
Economic School – Georgia”, Georgia
Liberales Institut, Germany
The Institute of Economic Affairs, Ghana
Centro de Investigaciones Económicas Nacionales,
Guatemala
Institut de Recherche pour la Liberte Economique et la
Prosperite (IRLEP), Haiti
Hong Kong Centre for Economic Research, Hong Kong
Szazadveg Foundation, Hungary
Centre for Social and Economic Research (RSE),
Iceland
Centre for Civil Society, India
The Institute for Development of Economics and
Finance, Indonesia
Open Republic Institute, Ireland
Jerusalem Institute for Market Studies, Israel
Centro Einaudi, Italy
Bureau d'Analyse d'Ingenierie et de Logiciels (BAILO),
Ivory Coast
African Research Center for Public Policy and Market
Process, Kenya
Center for Free Enterprise, Korea
Economic Policy Institute-Bishkek Consensus, Kyrgyz
Republic
Lithuanian Free Market Institute, Lithuania
D'Letzeburger Land, Luxembourg
Centro de Investigación para el Desarrollo A.C., Mexico
Open Society Forum, Mongolia
The Center for Entrepreneurship and Economic
Development (CEED), Montenegro
The Prosperity Foundation, Nepal
The New Zealand Business Roundtable, New Zealand
Institute of Public Policy Analysis, Nigeria
Center for Business and Society Incorporated (Civita),
Norway
International Research Foundation (IRF), Oman
Alternate Solutions Institute, Pakistan
Pal-Think for Strategic Studies, Palestine
Fundación Libertad, Panama
Centro de Investigación y Estudios Legales (CITEL),
Peru
The Center for Research and Communication,
Philippines
Centrum im. Adama Smitha, Poland
Causa Liberal, Portugal
Romania Think Tank, Romania
Institute of Economic Analysis, Russia
Free Market Center (FMC), Serbia
The F.A. Hayek Foundation, Slovak Republic
Free Society Institute (FSI), Slovenia
The Free Market Foundation of Southern Africa, South
Africa
Pathfinder Foundation, Sri Lanka
Timbro, Sweden
Liberales Institut, Switzerland
Arthur Lok Jack Graduate School of Business, The
University of the West Indies, Trinidad and Tobago
Association for Liberal Thinking, Turkey
The Ukrainian Center for Independent Political Researc
Ukraine
The Institute of Economic Affairs (IEA), United Kingdom
CATO Institute, USA
The Centre for the Dissemination of Economic
Knowledge (CEDICE), Venezuela
Research Center for Entrepreneurship Development,
Vietnam
Zambia Institute for Public Policy Analysis (ZIPPA),
Zambia
Sample of Press Coverage for
Fraser Institute’ Economic Freedom of the World 2007
All Africa, Africa
Business Day, Africa
Business.lafrica.com, Africa
La Nacion, Argentina
Universia, Argentina
Hetq Online, Armenia
Gulf Daily News, Bahrain
Zero Hora, Brazil
Portal Acionista, Brazil
O'Globo, Brazil
Sofia Echo, Bulgaria
Bulgarian Paper, Bulgaria
Calgary Sun, Canada
Globe and Mail, Canada
National Post, Canada
Toronto Sun, Canada
Toronto Star, Canada
Vancouver Sun, Canada
China Post, China
China Knowledge online, China
Xinhua News, China
Chinese Paper, China
Business Day, Colombia
Listin Diaro, Dominican Republic
El Universon, Ecuador
Faz.net, Germany
German paper, Germany
Die Presse, Germany
Hong Kong Daily, Hong Kong
Living in Hong Kong, Hong Kong
Portfolio, Hungary
Business Standard, India
India Paper, India
Business Standard, International
El Economista, International
Economist, International
US4Arabs, International
Reuters, International
Globes Israel, Israel
Israel Business Area, Israel
Jerusalem Post, Israel
Il Sole, Italy
Al Ghad, Jordan
Alrai Newspaper, Jordan
Addustour Newspaper, Jordan
Greaterkashmir.com, Kashmir
Donga Daily, Korea
Segye Daily, Korea
Baltic Business Weekly, Latvia
Latvian News Agency, Latvia
Baltic Business Weekly, Latvia
Nufooz web, Lebanon
Edge Financial, Malaysia
Edge Daily, Malaysia
Agencia Mexicana de Noticias, Mexico
La Jordana, Mexico
La Cronica, Mexico
UB Post, Mongolia
Republika, Montenegro
Market Montenegro, Montenegro
Scoop, New Zealand
Press, New Zealand
Arabic Paper, Oman
Oman Tribune, Oman
Times of Oman, Oman
Pakistan Press International, Pakistan
The Post, Pakistan
Pakistan Defence, Pakistan
AHN, Pakistan
Dawn, Pakistan
Invertia Peru, Peru
Philippine Daily Enquirer, Philippines
Poland Press, Poland
Rompres, Romania
Russian Paper, Russia
Blic Online, Serbia
Finance, Slovenia
Izvoznookno, Slovenia
Slovanian Press agency, Slovenia
The Strait Times, Singapore
IVO.co.za, South Africa
Mail and Guardian, South Africa
News 24, South Africa
Actualidad Economica, Spain
Agencia EFE, Spain
Europa Press, Servicio Economico,
Spain
Invertia, Spain
Terra Espana, Spain
Sudanile website, Sudan
Al Khaleej Newspaper, UAE
Khaleej Times, UAE
Bull & Bear Financial Report, US
Business Journal, US
OpEdNews.com (Newtown,PA)
Public Choice, US
TradingMarkets.com, US
Wall Street Journal, US
Yahoo Finance, US
El Universal, Venezuela
El Nacional, Venezuela
Invertia, Venezuela
Business News, Zambia
Zimbabwe Guardian, Zimbabwe
Zimbabwe Standard, Zimbabwe
Sub-national and Regional Indices
Economic Freedom of the Arab World
Marketization Index of Chinese Provinces
Economic Freedom Index of Indian States
Economic Freedom Index of German States
Economic Freedom Index of
Argentinean Provinces
Economic Freedom of North America
Introducing the 2008 Economic
Freedom of the World Index Results
Overall Economic Freedom
Index and the Top 10
Hong Kong
Singapore
New Zealand
Average of top 10
Switzerland
United Kingdom
Chile
Canada
Australia
United States
Ireland
0
2
4
6
Score (out of 10)
Source: The Fraser Institute.
8
10
Overall Economic Freedom
Index and the Bottom Ten
Chad
Central Afr. Rep.
Guinea-Bissau
Congo, Dem. R.
Venezuela
Niger
Congo, Rep. Of
Myanmar
Angola
Zimbabwe
0
2
4
6
Score (out of 10)
Source: The Fraser Institute.
8
10
Economic Freedom Over Time
Economic Freedom Score
10
8
6 6.1
5.5 5.4 5.5 5.7
6.0
6.4 6.4 6.4 6.4 6.4 6.6 6.6
4
2
0
1970 1975 1980 1985 1990 1995 2000 2001 2002 2003 2004 2005 2006
Source: The Fraser Institute.
Economic Freedom and the Top 10
Size of Government and the Top 10
Hong Kong
Switzerland
Singapore
Chile
Average of top 10
United States
Canada
Australia
New Zealand
United Kingdom
Ireland
0
2
Source: The Fraser Institute.
4
6
Score (out of 10)
8
10
Legal System and Property Rights
and the Top 10
New Zealand
Australia
Switzerland
Singapore
Canada
United Kingdom
Average of top 10
Hong Kong
Ireland
United States
Chile
0
2
4
6
Score (out of 10)
Source: The Fraser Institute.
8
10
Sound Money and the Top 10
United States
Canada
Switzerland
Ireland
Australia
United Kingdom
Average of top 10
Hong Kong
New Zealand
Chile
Singapore
0
2
Source: The Fraser Institute.
4
6
Score (out of 10)
8
10
Freedom to Trade Internationally
and the Top 10
Hong Kong
Singapore
Chile
Ireland
Average of top 10
New Zealand
United Kingdom
United States
Australia
Canada
Switzerland
0
2
Source: The Fraser Institute.
4
6
Score (out of 10)
8
10
Regulations and the Top 10
New Zealand
Hong Kong
United States
United Kingdom
Chile
Singapore
Canada
Average of top 10
Switzerland
Australia
Ireland
0
2
4
6
Score (out of 10)
Source: The Fraser Institute.
8
10
Credit Market Regulations
and the Top 10
New Zealand
United Kingdom
Australia
United States
Canada
Average of top 10
Singapore
Chile
Hong Kong
Switzerland
Ireland
0
2
Source: The Fraser Institute.
4
6
Score (out of 10)
8
10
Labor Market Regulations
and the Top 10
United States
Hong Kong
Chile
New Zealand
Switzerland
Average of top 10
United Kingdom
Canada
Australia
Singapore
Ireland
0
2
4
6
Score (out of 10)
Source: The Fraser Institute.
8
10
Business Regulations
and the Top 10
Singapore
Hong Kong
New Zealand
Canada
Switzerland
Average of top 10
Australia
Ireland
United Kingdom
Chile
United States
0
2
4
6
Score (out of 10)
Source: The Fraser Institute.
8
10
Why is Economic Freedom
Important?

Economic rights are fundamental rights
in the sense that without them there can
be no political or civil freedoms
 They are a prerequisite for growth and
development
 They are a prerequisite for broader
human development
The impact on economic growth
and development
Income (per person) of the
Bottom Ten
Venezuela
Angola
Congo, Rep. Of
Chad
Myanmar
Central Afr. Rep.
Niger
Guinea-Bissau
Congo, Dem. R.
0
10,000
20,000
30,000
40,000
GDP per Capita, 2006 (ppp)
Sources: The Fraser Institute; The World Bank, World Development Indicators,
2008.
50,000
Income (per person) of the Top 10
Singapore
United States
Ireland
Hong Kong
Switzerland
Canada
Australia
United Kingdom
New Zealand
Chile
$0
$10,000
$20,000
$30,000
$40,000
$50,000
GDP per Capita, 2006 (ppp)
Sources: The Fraser Institute; The World Bank, World Development Indicators,
2008.
Per Capita Income and Economic
Freedom Quartile
GDP Per Capita
(ppp), 2006
$35,000
$30,000
$25,000
$20,000
$15,000
$10,000
$5,000
$0
Least Free
Quartile
3rd Quartile
2nd Quartile
Most Free
Quartile
Least Free ………………... Most Free
Sources: The Fraser Institute; The World Bank, World Development Indicators,
2008.
Foreign direct investment,
net inflows (% of GDP),
1990-2006
Foreign Direct Investment and
Economic Freedom Quartile
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
Least Free
Quartile
3rd Quartile
2nd Quartile
Most Free
Quartile
Least Free ……………...…... Most Free
Sources: The Fraser Institute; The World Bank, World Development Indicators,
2008.
Economic Freedom,the Poor, and
Inequality
Income Share of the Poorest 10% and
Income Share Held by
Lowest 10%, 1990-2006
Economic Freedom
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
Least Free
Quartile
3rd
Quartile
2nd
Quartile
Most Free
Quartile
Least Free …………….. Most Free
Sources: The Fraser Institute; The World Bank, World Development Indicators,
2008.
Income Level of the Poorest 10% and
Income Level of the
Poorest 10%, 1990-2006
Economic Freedom
$9,000
$8,000
$7,000
$6,000
$5,000
$4,000
$3,000
$2,000
$1,000
$0
Least Free
Quartile
3rd
Quartile
2nd
Quartile
Most Free
Quartile
Least Free …………….. Most Free
Sources: The Fraser Institute; The World Bank, World Development Indicators,
2008.
39
Economic Freedom, Other
Freedoms and Democracy
Economic Freedom and Political Rights
Higher ratings indicate higher levels of political rights
Political Rights
(out of 10)
10.0
8.0
6.0
4.0
2.0
0.0
Least Free
Quartile
3rd Quartile
2nd Quartile
Most Free
Quartile
Least Free …………………. Most Free
Sources: The Fraser Institute; Freedom House, Freedom in the World Country Ratings,
2006, available at http://www.freedomhouse.org/.
Economic Freedom and Civil Liberties
Higher ratings indicate higher levels of civil liberties
Civil Liberties
(out of 10)
10.0
8.0
6.0
4.0
2.0
0.0
Least Free
Quartile
3rd Quartile
2nd Quartile
Most Free
Quartile
Least Free …………………… Most Free
Sources: The Fraser Institute; Freedom House, Freedom in the World Country
Ratings, 2006, available at http://www.freedomhouse.org/.
Economic Freedom and Corruption
Lower values indicate lower levels of corruption
Corruption Rating
(out of 10)
10.0
8.0
6.0
4.0
2.0
0.0
Least Free
Quartile
3rd Quartile
2nd Quartile
Most Free
Quartile
Least Free …………………. Most Free
Sources: The Fraser Institute; Transparency International, Corruption Perceptions Index,
2006/2007, available at http://www.transparency.org.
The impact of Economic Freedom on
the UN’s Human Development Index
and other indicators of well-being
Human Development Index and Economic
Freedom Quartiles
United Nations
Human Development
Index
Higher ratings indicate higher levels of development
1.0
0.8
0.6
0.4
0.2
0.0
Least Free
Quartile
3rd Quartile
2nd Quartile
Most Free
Quartile
Least Free ……………. Most Free
Sources: The Fraser Institute; United Nations Development Programmme, Human
Development Indicators 2008, available at http://hdr.undp.org/.
Life Expectancy at Birth and
Economic Freedom Quartiles
80
Years
60
40
20
0
Least Free
Quartile
3rd Quartile
2nd Quartile
Most Free
Quartile
Least Free ……………. Most Free
Sources: The Fraser Institute; The World Bank, World Development Indicators,
2008.
Per 1,000 live births, 2006
Infant Mortality and Economic
Freedom Quartile
80
60
40
20
0
Least Free
Quartile
3rd Quartile
2nd Quartile
Most Free
Quartile
Least Free ………..………. Most Free
Sources: The Fraser Institute; The World Bank, World Development Indicators,
2008.
% of Population Using Improved
Water Sources
100
Percentage
80
60
40
20
0
Least Free
Quartile
3rd Quartile
2nd Quartile
Most Free
Quartile
Least Free ………………... Most Free
Sources: The Fraser Institute; The World Bank, World Development Indicators,
2008.
Environmental Performance and Economic
Freedom Quartile
Higher ratings indicate higher levels of environmental performance
Index (out of 100)
100
80
60
40
20
0
Least Free
Quartile
3rd Quartile
2nd Quartile
Most Free
Quartile
Least Free ………..……….. Most Free
Sources: The Fraser Institute; The World Bank, World Development Indicators,
2008.
New research:
Economic Freedom and World Poverty
Economic Freedom and World Poverty

Eradication of world poverty: a crucial matter
for economist, policy makers and concerned
citizens

Seth W. Norton and James D. Gwartney, in
chapter 2, explore the relationship between
economic freedom and poverty in developing
nations
Economic Freedom and World Poverty
Facts

Both the $1-per-day and the $2-per-day poverty rates
have declined since 1980

The weighted (by population) mean poverty rate
indicates that the overall $1-per-day poverty rate of
developing countries was nearly cut in half between
1980 and 2004 (from 32% to 17%)

Furthermore, various non-pecuniary indicators of
poverty also imply that the well-being of the poor has
improved during the past quarter of a century
53
Economic Freedom and World Poverty
Empirical Evidence

The results confirm a strong positive relationship between
economic freedom and poverty reduction

Specifically, the weighted $1-per-day poverty rate was 29.7%
in 2004 for countries with EFW ratings of less than 5, but only
7.7% for countries with EFW ratings between 6 and 7

And the $2-per-day poverty rate declines from 51.5% to 46.2%
to 38.9% as one moves from the least (less than 5) to the most
free (between 6 and 7) developing nations

A one-unit increase in economic freedom rating between 1980
and 1995 was associated with a 5.21 percentage-point
reduction in the $1-per-day poverty rate and a 5.22 percentagepoint reduction in the $2-per-day poverty rate
55
Economic Freedom and World Poverty
Empirical Evidence

The authors also examine the relationship between economic
freedom and non-pecuniary set of poverty indicators:
•
•
•
•
•
•
•

% of population with access to improved water
Life expectancy at birth, total (years)
Infant survival rate (per 1000)
Under-five survival rate (per 1000)
Physicians (per 1,000 people)
% of population with adequate nourishment
UN Human poverty index
The results shows once again that poverty rates are
substantially lower in persistently free developing nations
compare to the economies with lower levels of economic
freedom
Economic Freedom and World Poverty
Empirical Evidence

72.6% of the population has access to safe water in the mostly
unfree economies (less than 5) compared to nearly 100% in
the mostly free developing nations (more than 7)

Life expectancy of people in the mostly free group is over 20years greater than for those in mostly unfree developing
economies

Mostly free economies have more than twice as many
physicians per 1,000 population than mostly unfree
economies
Economic Freedom and World Poverty
Empirical Evidence

For every 1,000 births, 64 more babies survive in
mostly free developing countries per year than in the
mostly unfree developing nations

For every thousand children under age of five, 109
more children survive in mostly free developing
nations each year than in those countries that are
mostly unfree
Policy Implications

Developing nations need to focus on increasing
economic freedom to promote growth and
reduce poverty

Reductions in poverty rates are closely related
to institutions and policies consistent with
economic freedom

Growth is the driving force behind reductions in
poverty. Without economic growth, there will
be little or no reduction in poverty
Policy Implications for Africa
The authors investigate high poverty levels in SubSaharan Africa and find these nations need to increase
economic freedom. Specifically, they need to

Build the rule of law to protect property rights, encourage
investment, and reduce corruption

Remove trade barriers so that African nations, which tend
to have small domestic market, can achieve gains from
trade

Simplify business regulations to encourage investment by
eliminating unnecessary regulatory barriers, reduce
corruption, and lower administrative costs on businesses
60
Conclusions
Economic Freedom

Increases prosperity for all
 Reduces poverty
 Increases other freedoms
 Improves quality of life
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