1

2

2007 Index of Economic Freedom

OUTLINE

1. What’s New?

2. Results

3. How Economic Freedom is Measured

4. Freedom and Prosperity

3

What’s New?

1. Continuity! Ranks, Scores, Usability

2. New Academic Advisory Board

3. New % Scores: 0-100 replaces 5-1

4. New Methodology: More Data-driven

5. New Labor Freedom

6. New Country Page Design

7. New Regions: Europe. Americas.

4

RESULTS: Top 10

1. Hong Kong 89.3%2. Singapore 85.7%3. Australia 82.7%4. United States 82.0%5. New Zealand 81.6%6. United Kingdom81.6%7. Ireland 81.3%8. Luxembourg 79.3%9. Switzerland 79.1%10. Canada 78.7%

5

RESULTS: Distribution

6

7

10 Biggest* Economies

United States 82.0%China 54.0%Japan 73.6%India 55.6%Germany 73.5%United Kingdom 81.6%France 66.1 % Italy 63.4%Russia 54.0%Brazil 60.9%WORLD 60.6%

* In terms of total GDP

8

• William W. Beach, co-chairman, The Heritage Foundation• Tim Kane, co-chairman, The Heritage Foundation

• Maria Sophia Aguirre, Catholic University of America• Donald J. Boudreaux, George Mason University• Ike Brannon, Economist, Washington, D.C.• Simeon Djankov, World Bank• Axel Dreher, ETH Zurich• Clive Granger, University of California, San Diego• Douglas Holtz-Eakin, Council on Foreign Relations• Garett Jones, Southern Illinois University Edwardsville• Mordechai “Max” Kreinin, Michigan State University• Philippe Lacoude, Economist, Paris, France• Richard Roll, University of California, Los Angeles• Xavier Sala-i-Martin, Columbia University • Friedrich Schneider, University of Linz• Aaron Smith, University of California, Davis

Measuring Freedom:2007 Advisory Board

9

Measuring Freedom:The 10 Economic Freedoms

1. Business Freedom - Ease of starting business2. Trade Freedom - Tariffs and barriers3. Fiscal Freedom - Tax rates and revenue4. Fdm. from Government - State spending & ownership5. Monetary Freedom - Inflation and price

controls6. Investment Freedom - Free flow of capital7. Financial Freedom - Banking institutions8. Property Rights - Physical & intellectual9. Fdm. from Corruption - Perception of corruption10. Labor Freedom - Flexibility of labor market

There are 10 Freedoms, each measured 0-100.

Overall score is a simple average (equal weights).

10

10 Factors (Old Methodology)

RegulationTrade PolicyFiscal BurdenGovernment InterventionMonetary PolicyWages and PricesForeign InvestmentBanking and FinanceProperty RightsInformal Market

10 Freedoms (New Methodology*)

Business Freedom Trade Freedom Fiscal Freedom Freedom from Government

Investment Freedom Financial Freedom Property Rights Freedom from Corruption

+ Labor Freedom

*New methodology is applied to all previous years, 1995-2007

Monetary Freedom

Measuring Freedom:Revised Methodology

11

Business Freedom

Trade Freedom

Fiscal Freedom

Freedom from Government

Monetary Freedom

Investment Freedom

Financial Freedom

Property Rights

Freedom from Corruption

Labor Freedom

Continuity

(100 = no change)Explanation

100

100

100

100

95 New Data in 2007

90 New Scale in 2007

90 New Scale in 2007

90 New Scale in 2007

100

100

2006 to 2007

Introduced in 20040

New Data in 200250

New Scale in 200790

New Scale in 200790

New Scale in 200790

New Data in 200795

100

100

100

New Data in 200550

ExplanationContinuity

(100 = no change)

1995 to 2007

Measuring Freedom:Time Series Continuity

12

Economic Freedom and GDP Per Capita

Note: log scaleSources: World Bank, World Development Indicators Online, at publications.worldbank.org/subscriptions/WDI (subscription required); Central Intelligence Agency, The World Factbook 2005, at www.cia.gov/cia/publications/factbook/index.html; International Monetary Fund, World Economic Outlook database, April 2006, at www.imf.org/external/pubs/ft/weo/2006/01/data/index.htm; and Tim Kane, Kim R. Holmes, and Mary Anastasia O’Grady, 2007 Index of Economic Freedom (Washington, D.C.: The Heritage Foundation and Dow Jones & Company, Inc., 2007), at www.heritage.org/index.

$100

$1,000

$10,000

$100,000

20 30 40 50 60 70 80 90 100

Pe

r C

ap

ita

GD

P (

PP

P)

Economic Freedom Score