Transcript Economic Freedom of the World: 2002 Annual Report       Presentation to Fraser Institute Press Conference Calgary June 24, 2002 Fred McMahon and Michael Walker The Fraser Institute.

Economic Freedom of the World:
2002 Annual Report
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Presentation to
Fraser Institute Press
Conference
Calgary
June 24, 2002
Fred McMahon and
Michael Walker
The Fraser Institute
1
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 under-development

2
Economic Freedom of the World
Project
Objective: find a way to measure economic
freedom and explore the connection
between it and other variables
 17 year project
 Led by Professor Milton Friedman, Rose
Friedman and Michael Walker
 Involved 60 of the world’s top economists
and political scientists

3
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 36 government policies affecting
economic freedom based on objective data or
independent surveys
 A ranking of 123 countries representing 91% of the
world’s population according to the extent to which
they permit their citizens to be economically free
 Now a collaboration of 55 Institutes in 55 different
countries

4
Introducing the 2002 Economic
Freedom of the World Index
Results
5
The top ten and how they got
there
Australia
1
Rank
Canada
Hong Kong
11
Ireland
Netherlands
21
New Zealand
Singapore
31
Switzerland
United Kingdom
1970 1975 1980 1985 1990 1995 2000
United States
6
Countries with significant
deterioration since 1970
1
Colombia
21
Ecuador
Nigeria
Rank
41
Guatemala
61
Pakistan
81
Syria
Venezuela
101
Madagascar
121
Congo, Dem. R.
1970 1975 1980 1985 1990 1995 2000
Iran
7
Economic Freedom in Africa
10
Algeria
Benin
Botswana
8
Burundi
Cameroon
CenAfRep
6
Chad
Congo DR
4
Congo R
Cote d'IV
Gabon
2
Ghana
Guinea-Bi
Kenya
0
Madagascar
1970 1975 1980 1985 1990 1995 2000
Top Ten Average
8
More African Countries
Malawi
10
Mali
Mauritius
8
Namibia
Niger
Nigeria
6
Rwanda
Senegal
4
Sierre Le
South Afr
Tanzania
2
Togo
Uganda
0
Zambia
1970
1975
1980
1985
1990
1995
2000
Zimbabwe
Top Ten
Average
9
Economic Freedom on the march.
Economic Freedom of the World
Average Rating, 1980-2000
(Based on Chapter 1, Exhibit 4)
7.0
6.0
6.2
5.1
5.2
5.3
1975
1980
1985
5.6
1990
6.6
5.0
4.0
1995
2000
10
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

11
The impact on economic growth
and development
12
Income (per person) of the
Bottom Ten
Russia
Romania
Algeria
Ukraine
Zimbabwe
Togo
Guinea-Bissau
Congo, Dem. R.
Malawi
Congo, Rep. Of
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
13
Per Capita Income and
Economic Freedom Quintile
Gross National
Income Per Capita,
ppp US$, 2000
$25,000
$20,000
$15,000
$10,000
$5,000
$0
Bottom 20% 2nd Quintile 3rd Quintile 4th Quintile
Top 20%
Least Free …….. Most Free
14
GDP Per Capita % Growth,
1990-2000
Growth in Real GDP Per Capita
and Economic Freedom Quintile
3
2.5
2
1.5
1
0.5
0
-0.5
-1
Bottom 20% 2nd Quintile 3rd Quintile
4th Quintile
Top 20%
Least Free ……………..….. Most Free
15
Income Per Capita,
lowest 10%
ppp US$, 2000
Per Capita Income of poorest
10% and Economic Freedom
$8,000
$7,000
$6,000
$5,000
$4,000
$3,000
$2,000
$1,000
$0
7017
4108
728
Bottom
20%
1282
2nd
Quintile
1391
3rd Quintile 4th Quintile
Top 20%
Least Free …….. Most Free
16
The impact on human
development

The United Nations Development Index
17
United Nations Human
Development Index, 1999
Economic Freedom and Human
Development
1
R2 = 0.4454
0.8
0.6
0.4
0.2
0
0
2
4
6
Economic Freedom Rating
8
10
18
Life Expectancy at Birth, 1999, and
Economic Freedom Quintiles
80
Years
70
60
50
40
30
Bottom 20%
2nd Quintile
3rd Quintile
4th Quintile
Top 20%
Least Free ……………. Most Free
19
1999,Adult Illiteracy rate, (% of population
age 15 and above) by Economic Freedom
Quintile
35
30
25
20
15
10
5
0
Bottom 20%
2nd Quintile
3rd Quintile
4th Quintile
Top 20%
Least Free ……….... Most Free
20
Human Poverty Index and
Economic Freedom Quintile
40
35
30
25
20
15
10
5
0
Bottom 20%
2nd Quintile
3rd Quintile
4th Quintile
Top 20%
Least Free …………..…. Most Free
21
Infant Mortality and Economic
Freedom Quintile
Per 1,000 live births, 1999
80
70
60
50
40
30
20
10
0
Bottom 20% 2nd Quintile 3rd Quintile
4th Quintile
Least Free ………..…. Most Free
Top 20%
22
Childer Under Weight for Age (%
under age 5), 1995-2000
Child Malnutrition and
Economic Freedom Quintile
25
20
15
10
5
0
Bottom 20%
2nd Quintile 3rd Quinitle
4th Quinitle
Least Free ……………..Most Free
Top 20%
23
Economic Freedom and Child Labor
(proportion of children 5-14 years of age
working, 2000)
70
60
50
40
30
20
10
0
Bottom
20%
2nd
Quintile
3rd
Quintile
4th
Quintile
Top 20%
Least Free ……………. Most Free
24
% of population with access
Access to Essential Drugs, 1999,
and Economic Freedom Quintiles
100
80
60
40
20
0
Bottom 20% 2nd Quintile 3rd Quintile
4th Quintile
Top 20%
Least Free …………..Most Free
25
% of Population Using Improved
Water Sources, 1999
100
80
60
40
20
0
Bottom 20% 2nd Quintile 3rd Quintile
4th Quintile
Top 20%
Least Free …………….. Most Free
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Economic Freedom Versus
Corruption
8
7
6
5
4
3
2
1
0
Bottom 20%
2nd Quitile
3rd Quitile
4th Quintile
Top 20%
Least Free ………….. Most Free
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Political Stability and Economic
Freedom Quintile
10
8
6
4
2
0
Bottom 20% 2nd Quintile 3rd Quintile
4th Quintile
Top 20%
Least Free ………..… Most Free
28
Political Rights & Civil Liberties
6
5
political freedom,
2000
civil
freedom,2000
4
3
2
1
0
Bottom
2nd
3rd
4th
Top 20%
20%
Quintile Quintile Quintile
Least Free …… Most Free
29
Focus on Mauritius
6
8
5
7
4
6
3
5
2
4
1
3
0
2
1975
1980
1985
1990
1995
Growth
Freedom
2000
30
Focus on Botswana
4000
8
3500
7
3000
6
2500
5
2000
4
1500
3
1000
2
500
1
0
0
1975
1980
1985
1990
1995
Income Per Capita
Economic Freedom
2000
31
In Africa,
Botswana
and South
Africa score
the best.
Countries
Botswana
South Africa
Average
Namibia
Kenya
Uganda
Zambia
Tanzania
Cote d'Ivoire
Benin
Ghana
Senegal
Burundi
Chad
Mali
Niger
Cameroon
Nigeria
Rwanda
Madagascar
Gabon
Sierra Leone
Central Afr. Rep.
Congo, Rep. Of
Zimbabwe
Togo
Malawi
Guinea-Bissau
Congo, Dem. R.
Average
2. Legal
System &
1. Size of
Property
Government, Rights,
2000
2000
5.3
7.1
5.4
6.5
5.4
6.8
3.9
6.6
6.2
6.6
5.5
7.7
6.5
6.8
6.7
6.5
6.5
5.7
5.9
5.5
5.5
5.5
6.5
3.7
6.2
4.3
3.5
4.7
4.4
4.2
4.6
4.4
5.5
8.3
4.1
4.7
6.5
6.5
3.5
4.1
4.1
5.3
4.7
4.7
3.6
4.7
4.1
2.9
2.3
5.0
3.5
5.9
2.9
1.7
4.5
3. Sound
Money,
2000
8.6
7.5
8.0
7.1
8.9
9.2
5.9
8.4
6.8
6.5
5.2
7.0
6.0
6.3
6.6
6.7
6.4
5.5
5.8
4.5
6.9
7.0
6.8
6.8
2.8
6.5
2.1
2.6
2.5
6.0
4. Freedom to
Trade with
5.
SUMMARY
foreigners, Regulation,
INDEX,
2000
2000
2000
7.7
6.5
7.0
7.3
7.0
6.8
7.5
6.7
6.9
6.9
7.1
6.8
8.1
5.6
6.2
5.3
6.5
6.0
4.5
5.8
5.9
5.4
5.8
5.8
4.6
6.0
5.9
4.1
5.1
7.0
6.3
6.0
5.9
6.6
6.2
5.6
5.6
3.7
5.4
5.1
5.9
4.6
5.5
3.9
4.6
4.6
5.0
6.1
5.2
4.4
5.5
4.8
3.9
4.8
5.4
4.4
5.1
5.1
4.0
5.0
6.6
6.6
6.5
6.5
6.0
5.9
5.8
5.7
5.7
5.6
5.6
5.6
5.5
5.5
5.3
5.3
5.2
5.2
5.0
5.0
4.9
4.8
4.7
4.7
3.8
3.2
5.4
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How important is it to have a sound legal structure
with security of property rights and rule of law?

Our analysis indicates that a legal structure that provides for
evenhanded enforcement of contracts and security of property rights is
vitally important. When it is absent, gains from trade will go
unrealized and both entrepreneurship and investment will flow
elsewhere.

A comparison between the highest 20 and lowest 20 countries in the
legal area illustrates this point. The average per capita GDP of the 20
highest rated countries in the legal area was $26,367 compared to an
average of $2,629 for the 20 lowest rated countries. Similarly, the
growth rate in the 1990s of the top 20 was 2.26% per year compared to
-0.26% per year among the bottom 20.
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Legal structure ratings and economic performance.
Top 20 Countries
Countries
Netherlands
Denmark
Aus tralia
Finland
Aus tria
United Kingdom
Switzerland
Canada
United States
Germany
New Zealand
Iceland
Sweden
Ireland
Norway
Singapore
Luxembourg
Namibia
Belgium
Japan
Average
2. Legal
S ystem &
Property
Rights,
2000
9.62
9.54
9.49
9.49
9.34
9.29
9.27
9.27
9.23
9.14
9.10
9.03
9.02
8.97
8.85
8.53
8.35
8.35
8.29
8.18
9.02
Gros s
National
Income
per capita,
ppp US$,
2000
$26,170
$27,120
$25,370
$24,610
$26,310
$23,550
$30,350
$27,330
$34,260
$25,010
$18,780
$28,770
$23,770
$25,470
$29,760
$24,970
$45,410
$6,440
$27,500
$26,400
$26,368
Bottom 20 Countries
GDP per
capita %
growth,
19902000
2.3
2.0
2.9
2.4
1.5
2.1
0.0
1.9
2.2
1.2
1.9
1.4
6.5
3.0
5.0
1.6
1.7
1.0
2.26
Countries
Peru
Venezuela
Nigeria
Cote d'Ivoire
Togo
Honduras
Paraguay
Colombia
Bolivia
Indonesia
Ecuador
Guatemala
Guinea-Bissau
Myanmar
Pakistan
Sierra Leone
Bangladesh
Algeria
Congo, Rep. Of
Congo, Dem. R.
Average
2. Legal
S ystem &
Property
Rights,
2000
3.94
3.75
3.62
3.55
3.55
3.54
3.53
3.53
3.43
3.36
3.30
2.95
2.95
2.95
2.95
2.95
2.89
2.35
2.35
1.75
3.16
Gross
National
Income
per capita,
ppp US$,
2000
$4,720
$5,750
$790
$1,520
$1,450
$2,390
$4,460
$5,890
$2,380
$2,840
$2,920
$3,770
$700
GDP per
capita %
growth,
19902000
3.0
-0.5
-0.4
0.5
-0.2
0.4
-0.4
1.1
1.7
2.5
-0.3
1.5
$1,960
$460
$1,650
$5,040
$590
$682
$2,630
1.2
-6.8
3.2
0.2
-3.0
-8.3
-0.26
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The End……phew!
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