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Economic Freedom of the World:
2011 Annual Report
Part 1
Presentation for the Conference
“Competition: Engine for Prosperity”
10-13 October 2011
Kuala Lumpur, Malaysia
Fred McMahon
Vice-President International Research
The Fraser Institute
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, labor and
capital markets
Overall Economic Freedom Index
and the Top 10
Hong Kong
Singapore
New Zealand
Switzerland
Australia
Canada
Chile
United Kingdom
Mauritius
United States
0
2
4
6
Score (out of 10)
Source: The Fraser Institute.
8
10
Overall Economic Freedom
Index and the Bottom Ten
Chad
Burundi
Congo, Rep. Of
Guinea-Bissau
Central Afr. Rep.
Congo, Dem. R.
Angola
Venezuela
Myanmar
Zimbabwe
0
2
4
6
Score (out of 10)
Source: The Fraser Institute.
8
10
Asia scores
Hong Kong
Singapore
New Zealand
Australia
Japan
Taiwan
Korea, South
Mongolia
Pap. New Guinea
Thailand
Fiji
Malaysia
Indonesia
Vietnam
Philippines
China
India
Pakistan
Nepal
Myanmar
9.01
8.68
8.2
7.98
7.44
7.37
7.32
7.29
6.91
6.87
6.71
6.68
6.5
6.48
6.46
6.43
6.4
6.03
5.5
4.16
0
2
4
6
Score (out of 10)
Source: The Fraser Institute.
8
10
Asia ranks
Hong Kong 1
Singapore 2
New Zealand 3
Australia 5
Japan
Taiwan
Korea, South
Mongolia
Pap. New Guinea
Thailand
Fiji
Malaysia
Indonesia
Vietnam
Philippines
China
India
Pakistan
Nepal
Myanmar
0
22
26
30
20
36
40
Source: The Fraser Institute.
61
65
60
77
78
84
88
89
92
94
80
100
114
120
129
140
140
World Average
Economic Freedom Over Time
8
6
6.6
7
6.6
4
6.7
3
6.7
9
6.6
8
6.5
5
6.2
7
5.8
6
5.5
3
5.5
0
5.5
6
0
6.1
Economic Freedom Score
10
4
2
0
1970 1975 1980 1985 1990 1995 2000 2005 2006 2007 2008 2009
Source: The Fraser Institute.
Why is Economic Freedom
Important?
• Economic rights are fundamental rights in
the sense that without them there can be
no political freedom or civil freedoms
• They are a prerequisite for growth and
development
• They are a prerequisite for broader human
development
The impact on prosperity
and development
Per Capita Income and Economic
Freedom Quartile
GDP Per Capita
(ppp), 2009
$35,000
$30,000
$25,000
$20,000
$15,000
$10,000
$5,000
$0
Most Free
Quartile
2nd Quartile
3rd Quartile
Least Free
Quartile
Most Free ……………. Least Free
Sources: The Fraser Institute; The World Bank, World Development
Indicators, 2011.
GDP Per Capita % Growth,
1990-2009
Growth in Developing Nations Per
Capita and Economic Freedom Quartile
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Most Free
Quartile
2nd Quartile
3rd Quartile
Least Free
Quartile
Most Free ……………. Least Free
Sources: The Fraser Institute; The World Bank, World Development Indicators,
2011.
Economic Freedom, the Poor, and
Inequality
Income Share of the Poorest 10% and
Income Share Held by
Lowest 10%, 1990-2009
Economic Freedom
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
Most Free
Quartile
2nd
Quartile
3rd
Quartile
Least Free
Quartile
Most Free ……………. Least Free
Sources: The Fraser Institute; The World Bank, World Development Indicators,
2011.
Income of the Poorest 10% and
Income of the Lowest
10%, 1990-2009
Economic Freedom
$9,000
$8,000
$7,000
$6,000
$5,000
$4,000
$3,000
$2,000
$1,000
$0
Most Free
Quartile
2nd
Quartile
3rd
Quartile
Least Free
Quartile
Most Free ……………. Least Free
Sources: The Fraser Institute; The World Bank, World Development Indicators,
2011.
Economic Freedom, Governance,
and Democracy
Economic Freedom and Political Rights
Low scores indicate high level of rights
Political Rights
(out of 7)
5.0
4.0
3.0
2.0
1.0
0.0
Most Free
Quartile
2nd Quartile
3rd Quartile
Least Free
Quartile
Most Free ……………. Least Free
Sources: The Fraser Institute; Freedom House, Freedom in the World Country Ratings,
2009, available at http://www.freedomhouse.org/.
Economic Freedom and Civil Rights
Low scores indicate high level of rights
5.0
Civil Liberties
(out of 7)
4.0
3.0
2.0
1.0
0.0
Most Free
Quartile
2nd Quartile
3rd Quartile
Least Free
Quartile
Most Free ……………. Least Free
Sources: The Fraser Institute; Freedom House, Freedom in the World Country Ratings,
2009, available at http://www.freedomhouse.org/.
Economic Freedom and Corruption
High scores indicate low corruption
Corruption Rating
(out of 10)
10
8
6
4
2
0
Most Free
Quartile
2nd Quartile
3rd Quartile
Least Free
Quartile
Most Free ……………. Least Free
Sources: The Fraser Institute; Transparency International, Corruption Perceptions Index,
2010 available at http://www.transparency.org.
The impact of Economic Freedom on
other indicators of well-being
Life Satisfaction
(out of 10)
Economic Freedom and
Life Satisfaction
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
Most Free
Quartile
2nd Quartile
3rd Quartile
Least Free
Quartile
Most Free ……………. Least Free
Sources: The Fraser Institute; (un)Happy Planet Index 2.0. Why good lives don't have
to cost the Earth. 2009.
Literacy
Male
Female
100.5
80.5
60.5
40.5
20.5
0.5
Most Free Quartile
2nd Quartile
3rd Quartile
Least Free
Quartile
Most Free ……………. Least Free
Sources: The Fraser Institute; United Nations Development Programmme, Human
Development Indicators 2011, available at http://hdr.undp.org/.
Life Expectancy at Birth and
Economic Freedom Quartiles
80
Years
60
40
20
0
Most Free
Quartile
2nd Quartile
3rd Quartile
Least Free
Quartile
Most Free ……………. Least Free
Sources: The Fraser Institute; The World Bank, World Development Indicators,
2011.
Malaysia comparisons
Malaysia and the world
10.0
8.0
6.0
Malaysia
World Average
4.0
2.0
0.0
Overall
Size of Government
Legal System
Sources: The Fraser Institute;
Sound Money
Freedom to Trade
Regulation
Top 10
Per Capita Income and Economic
Freedom Quartile
GDP Per Capita
(ppp), 2009
$35,000
$30,000
$25,000
$20,000
$15,000
$10,000
$5,000
$0
Most Free
Quartile
2nd Quartile
Malaysia
3rd Quartile Least Free
Quartile
Most Free ……………. Least Free
Sources: The Fraser Institute; The World Bank, World Development
Indicators, 2011.
Size of government
10.0
8.0
6.0
Malaysia
World Average
4.0
2.0
0.0
1 Size of
Government
1D Top marginal 1Dii Top Marginal 1Di Top Marginal
1C Gov't
tax rate
Income and Income Tax Rate enterprises and
Payroll Tax Rate
investment
Sources: The Fraser Institute;
1B Transfers 1A General gov't
and subsidies
consumption
spending
Top 10
Legal and property rights: 1
10.0
8.0
6.0
Malaysia
World Average
4.0
2.0
0.0
2 Legal System &
Property Rights
2D Military
interference in rule of
law and political
process
Sources: The Fraser Institute;
2C Protection of
property rights
2B Impartial courts
2A Judicial
independence
Top 10
Legal and property rights: 2
10.0
8.0
6.0
Malaysia
World Average
4.0
2.0
0.0
2 Legal System & Property 2G Regulatory restrictions on
Rights
the sale of real property
Sources: The Fraser Institute;
2F Legal enforcement of
contracts
2E Integrity of the legal
system
Top 10
Sound Money
10.0
8.0
6.0
Malaysia
World Average
4.0
2.0
0.0
3 Sound Money
3D Freedom of citizens
to own foreign
currency bank
accounts
Sources: The Fraser Institute;
3C Inflation: Most
recent year
3B Standard deviation
of inflation
3A Money growth
Top 10
Sources: The Fraser Institute;
4Ai International
trade tax revenues
(% of trade sector)
4Aii Mean tariff rate
4Aiii Standard
deviation of tariff
rates
4A Tarrifs
4Bi Nontariff trade
barriers
4Bii Compliance
costs of
importing/exporting
4B Regulatory
Trade Barriers
4 Freedom to Trade
Internationally
Freedom to Trade: 1
10.0
8.0
6.0
4.0
2.0
0.0
Malaysia
World Average
Top 10
Sources: The Fraser Institute;
4C Size of trade sector
relative to expected
4D Black market
exchange rates
4Ei Foreign
ownership/investment
restrictions
4Eii Capital Controls
4E International
Capital Market
Controls
4 Freedom to Trade
Internationally
Freedom to trade: 2
10.0
8.0
6.0
4.0
2.0
0.0
Malaysia
World Average
Top 10
Credit market regulations
10.0
8.0
6.0
Malaysia
World Average
4.0
2.0
0.0
5A Credit Market
Regulation
5Aiv Interest rate
controls/Negative real
interest rates)
Sources: The Fraser Institute;
5Aiii Private sector
credit
5Aii Foreign bank
competition
5Ai Ownership of
banks
Top 10
Labor market regulations
10.0
8.0
6.0
Malaysia
World Average
4.0
2.0
0.0
5B Labor
Market
Regulations
5Bvi
5Bv Mandated
Conscription dismissal costs
Sources: The Fraser Institute;
5Biv Hours 5Biii Centralized 5Bii Hiring and
5Bi Hiring
Regulations
collective
firing
Regulations and
Unemployment
bargaining
regulations Minimum Wage
insurance
Minimum wage
Mandated hiring
costs
Top 10
Business regulations
10.0
8.0
Malaysia
4.0
2.0
0.0
5Ci Price controls
5Cii Adm
requirements
5Ciii Burcry Costs
5Civ Starting
business
5Cv Extra
payments
5Cvi Licensing
restrictions
5Cvii Tax
compliance
5C Business
Regulations
Sources: The Fraser Institute;
World Average
6.0
Top 10
Conclusions
Economic Freedom
•
•
•
•
•
Increases prosperity for all
Reduces poverty
Increases other freedoms
Improves quality of life
To achieve these gains, Malaysia
needs to increase economic freedom
www.freetheworld.com
www.fraserinstitute.org