Transcript Economic Freedom of the World: Annual Report 2004

Economic Freedom of the
World Index:
A comparative examination

Fred McMahon
 Director, Globalization
Studies
 The Fraser institute

Economic Freedom of
the Arab World Meeting
 Marrakesh, Morocco
Thanks

The Friedrich Naumann Foundation for Liberty
deserves great credit for making this meeting
happen and covering so many of the costs.
 To my friend, Salem Al Ismaily and the IRF:
Tireless champions of economic freedom in
this region.
 And, of course, to our local hosts, the Centre
des Jeunes Dirigeants d’Enterprise (CJD).
Economic Freedom of the
World Project

Objective: find a way to measure economic
freedom and explore the connection
between it and other variables
 25 year project
 Led by the late Milton Friedman and Rose
Friedman and Michael Walker
 Involved 60 of the world’s top scholars
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 75 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
Based entirely on objective, third party data
and independent surveys for 141 countries
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
The Cambodia Institute of Development
Study, Cambodia
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, 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
Young Entrepreneurs Association, Jordan
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, Montenegro
The Prosperity Foundation, Nepal
The New Zealand Business Roundtable, New
Zealand
Initiative for 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
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, W.I.
Association for Liberal Thinking, Turkey
The Ukrainian Center for Independent Political
Research, 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 2008
African Executive,Kenya
Al Sabah, Kuwait
Aljazeera Net, International
The American Conservative,
USA
American Spectator, USA
AOL Money & Finance, USA
Asia Pulse, International
Augusta Chronicle, USA
BBC, International
Black Sea Press, Georgia
Boston Herald, USA
Budapest Sun, Romania
Bulgarian News Agency,
Bulgaria
Bulgarian Post, Bulgaria
Business Day, South Africa
Business Plus TV, Pakistan
Business Recorder, Pakistan
Business Zone, Bulgaria
Chinese Canadian Times,
Canada
Chinese Paper, China
Daily Graphic, Ghana
Daily News Sunday, USA
Dar Al Hayat, Lebanon
Darik Finance, Bulgaria
Donga Korea Daily, Korea
Econ Bulgaria, Bulgaria
Economia y Negocios, International
Economic Times India, India
Edmonton Journal, Canada
El Economista, International
El Economista.es, Spain
Financial News Korea, Korea
Financial Post, Canada
Financiarul, Romania
Foreign Policy, USA
Georgian Business Week, Georgia
Globe and Mail, Canada
Globe Investor, USA
Globes, Israel
Hankyoreh Daily Korea, Korea
Herald (Ottawa, KS), USA
Hong Kong Commercial Daily, Hong
Kong Economic Times, Hong Kong
Hungarian News Digest, Hungary
Indian Business Insight, India
Investor's Business Daily, USA
Israel Business Arena, Israel
Jang Lahore, Pakistan
Katmandu Post, Nepal
La Presse Canadienne, Canada
Latin Business Chronicle, USA
Le Droit, Canada
Leader, Iceland
Zambia Post, Zambia
Zimbabwe Independent, Zimbabwe
Dawn, Pakistan
Leader Post, Canada
L'Orient le Jour, Lebanon
Malaysia Paper, Malaysia
Marker Israel,
Israel
Marketwire, Canada
Monburkina.com, Burkina Faso
Munhwa Daily Korea, Korea
Naharnet Beirut, Lebanon
Nassau Guardian, Bahamas
National Post,
Canada
The New York Times, USA
Noticias Lusofonas, Angola
Oman Tribune,Oman
Pari Newspaper, Bulgaria
Portfolio Hungary, Hungary
RadioPlovdiv, Bulgaria
Reuters, USA
Russian Paper,
Rusia
Sofia News Agency, Bulgaria
South China morning Post, China
Star Phoenix,Canada
Taiwan Economic News, Taiwan
Telegraph-Journal, Canada
Times of India, India
Vancouver Sun, Canada
Venezuelan Paper, Venezuela
Xinhua, China
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
Overall Economic Freedom Index
and the Top 10
Hong Kong
Singapore
New Zealand
Average of top 10
Switzerland
Chile
United States
Ireland
Canada
Australia
United Kingdom
0
2
4
6
Score (out of 10)
Source: The Fraser Institute.
8
10
Overall Economic Freedom
Index and the Bottom Ten
Niger
Chad
Congo, Dem.R.
Guinea-Bissau
Central Afr. Rep.
Congo, Rep.of
Venezuela
Angola
Myanmar
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 6.6
4
2
0
1970 1975 1980 1985 1990 1995 2000 2001 2002 2003 2004 2005 2006 2007
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 economic growth
and development
Per Capita Income and Economic
Freedom Quartile
GDP Per Capita
(ppp), 2007
$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,
2009.
GDP Per Capita % Growth,
1990-2007
Growth in Real GDP Per Capita
and Economic Freedom Quartile
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,
2009.
Foreign direct investment,
net inflows (% of GDP),
1990-2007
Foreign Direct Investment and
Economic Freedom Quartile
19.3%
16.1%
12.9%
9.7%
6.4%
3.2%
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,
2009.
Economic Freedom, the Poor, and
Inequality
Income Share of the Poorest 10% and
Income Share Held by
Lowest 10%, 1990-2007
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,
2009.
Per Capita Income of Poorest 10%
and Economic Freedom
Income amount held by lowest 10% (1990-2007)
Income share held by lowest 10% (1990-2007)
3.0%
$10,000
2.5%
$8,000
2.0%
$6,000
1.5%
$4,000
1.0%
0.5%
$2,000
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,
2009.
The impact of Economic Freedom on
the UN’s Human Development Index
and other indicators of well-being
United Nations
Human Development
Index
Human Development Index and Economic
Freedom Quartiles
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 2009, 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,
2009.
Per 1,000 live births, 2007
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,
2009.
% 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,
2009.
Environmental Performance and Economic
Freedom Quartile
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,
2009.
Economic Freedom, Other
Freedoms and Democracy
Economic Freedom and Corruption
Corruption Rating
(out of 10)
10
8
6
4
2
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.
Economic Freedom and Political Rights
9.0
Political Rights
(out of 7)
8.0
7.0
6.0
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; Freedom House, Freedom in the World Country Ratings,
2007, available at http://www.freedomhouse.org/.
Economic Freedom and Civil Liberties
Lower ratings indicate higher level of civil liberties
Civil Liberties
(out of 7)
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, 2007, available at http://www.freedomhouse.org/.
Conclusions
Economic Freedom






Increases prosperity for all
Reduces poverty
Increases other freedoms
Improves quality of life
There is increasing global agreement about the
need for more economic freedom
Recent deviations from some aspects of
economic freedom will be unlikely to persist
in the face of the general move toward more
freedom
The Global Competitiveness
Report
The Global Competitiveness Index (GCI) …
captures the microeconomic and
macroeconomic foundations of national
competitiveness.
We define competitiveness as the set of
institutions, policies, and factors that
determine the level of productivity of a country.
From:www.weforum.org/en/initiatives/gcp/Global%20Competitiveness%20
Report/index.htm
Doing Business
Doing Business focuses on 10 topics, with the
specific aim of measuring the regulation and red
tape relevant to the life cycle


Doing Business does not:
measure all aspects of the business
environment that matter to firms or investors.
 assess the strength of the financial system or
financial market regulations.
 cover all regulations, or all regulatory goals, in
any economy.
From:www.doingbusiness.org/
Heritage Economic Freedom
Index
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
Subjective rankings
Cannot be reproduced
Impossible to tell exactly why a nation
received a certain score
Opens the index to political manipulation to
suit the political preferences of the authors
There have been a number of charges in the
media the index has been politically influenced
The index is getting better
www.freetheworld.com
www.fraserinstitute.org