1 index of economic freedom 2010 index presentation jakarta, indonesia june 25, 2010 james m....

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Index of Economic Freedom

2010 Index Presentation

Jakarta, Indonesia

June 25, 2010

James M. RobertsResearch Fellow for

Economic Freedom and Growth

Center for International Trade and EconomicsThe Heritage Foundation

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1995 to 2010: 16 Years of the Index of Economic Freedom

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Timeless Principles of Economic Freedom• Fundamental right of every human to control his or

her own labor and property• Individuals should be free to work, produce, consume,

and invest• That freedom should be both protected by the state

and unconstrained by the state• Governments should allow labor, capital and goods to

move freely, and refrain from coercion or constraint of liberty beyond the extent necessary to protect and maintain liberty itself

• Free Markets—Open Competition


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1. Business Freedom

2. Trade Freedom

3. Fiscal Freedom

4. Government Spending

5. Monetary Freedom

6. Investment Freedom

7. Financial Freedom

8. Property Rights

9. Freedom from Corruption

10. Labor Freedom

Measuring Economic Freedom


•Each freedom is measured between 0 and 100.•Overall economic freedom score is a simple average of the 10 freedoms (equal weighting).

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1. Business Freedom - World Bank Doing Business

2. Trade Freedom - World Bank & WTO (Trade Policy Review)

3. Fiscal Freedom - OECD, IMF, Ernst and Young, & Deloitte

4. Government Spending - OECD, IMF, & World Bank

5. Monetary Freedom - IMF, EIU, & central banks

6. Investment Freedom - EIU, IMF, World Bank,& DOC

7. Financial Freedom - EIU, IMF, World Bank, & DOC

8. Property Rights - USDOC, USDOS, IMF, & EIU

9. Freedom from Corruption - Transparency International

10. Labor Freedom - World Bank Doing Business

Major Information Sources


•Also used to calculate scores: information from various governmental websites; articles from major international/domestic newspapers; and specific country reports from other international organizations such as the Asian Development Bank, UN Commission for Trade and Development (UNCTAD), African Development Bank, and Inter-American Development Bank.

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Ten Economic Freedoms: Global Averages

59.4

64.6

74.2

75.4

65

70.6

48.9

48.6

43.8

40.5

62.1

0 50 100

Overall Economic Freedom

Business Freedom

Trade Freedom

Fiscal Freedom

Gov't Spending

Monetary Freedom

Investment Freedom

Financial Freedom

Property Rights

Freedom from Corruption

Labor Freedom


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Which Countries Enjoy More Economic Freedom?

Top 10

“Free”

1. Hong Kong2. Singapore3. Australia4. New Zealand5. Ireland 6. Switzerland7. Canada

“Mostly Free”

8. United States9. Denmark10. Chile

Bottom 10

179. North Korea178. Zimbabwe177. Cuba176. Eritrea175. Burma174. Venezuela173. Libya172. Dem. Rep. of

Congo171. Turkmenistan170. Solomon Island


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Asia-Pacific’s Performance in the 2010 Index

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Economic Freedom by Region

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Indonesia's Economic Freedom

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Indonesia’s Performance: Further Reforms Needed

• Indonesia’s economic freedom score is 55.5, making its economy the 114th freest in the 2010 Index. Its score has improved by 2.1 points since last year, reflecting improvements in business freedom, fiscal freedom, and freedom from corruption.

• Indonesia is ranked 21st out of 41 countries in the Asia–Pacific region, and its overall score is below the world average.

• Recent Improvements:– Improved entrepreneurial environment– Enhanced regional competitiveness– More vibrant private sector through decentralization– Management of public finance has improved; tariff barriers lowered.

• Lingering institutional impediments—more reforms needed: – Starting a business takes more than twice as long as the world average– Onerous regulations– Investment freedom curtailed by government interference– Pervasive corruption—weak, nontransparent judicial institutions


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Malaysia's Economic Freedom

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Cambodia's Economic Freedom

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Vietnam's Economic Freedom

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Singapore’s Economic Freedom

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Global Recovery: Keynesianism Is Not The Answer

• Failure of Government Spending/Fiscal Stimulus to sustain recovery

• Collapse of welfare state model


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How the 20 Largest Economies Performed


-2.7-2.5-2.2-2.0-2.0-1.1-0.6-0.5-0.5-0.1

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Score changes from the 2009 Index to the 2010 Index

Source: Terry Miller and Kim R. Holmes, 2010 Index of Economic Freedom (Washington, D.C.: The Heritage Foundation and Dow Jones & Company, Inc., 2010), at www.heritage.org/index.

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Higher Government Spending? Lower Growth …


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Fiscal Stimulus – No Impact on Growth


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Economic Freedom Matters

• Higher per Capita Economic Growth

• Poverty Reduction

• Improved Good Governance

• Enhanced Human Development

• Increased Investment

• Better Environmental Quality


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Economic Freedom is Key to Prosperity

Sources: Terry Miller and Kim R. Holmes, 2010 Index of Economic Freedom (Washington, D.C.: The Heritage Foundation and Dow Jones & Company, Inc., 2010), at www.heritage.org/index; World Bank, World Development Indicator Online, www.worldbank.org/data

Correlation: 0.67

R2 = 0.45

$-

$15,000

$30,000

$45,000

$60,000

20 40 60 80 100

Economic Freedom

GDP per Capita (in constant 2000 US$)

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The Greater Economic Freedom, The Higher Standard of Living

Sources: Terry Miller and Kim R. Holmes, 2010 Index of Economic Freedom (Washington, D.C.: The Heritage Foundation and Dow Jones & Company, Inc., 2010), at www.heritage.org/index; World Bank, World Development Indicator Online, www.worldbank.org/data

$28,091

$23,253

$6,819

$1,478 $1,796

$-

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

Free Mostly Free Moderately Free Mostly Unfree Repressed

Economic Freedom

GDP per Capita (in constant 2000 US$)

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Economic Freedom Promotes Good Governance

Sources: Terry Miller and Kim R. Holmes, 2010 Index of Economic Freedom (Washington, D.C.: The Heritage Foundation and Dow Jones & Company, Inc., 2010), at www.heritage.org/index; the Economist Intelligence Unit’s Index of Democracy, Country Forecasting Services, Economist Intelligence Unit, at http://graphics.eiu.com/PDF/Democracy%20Index%202008.pdf

Correlation: 0.67

R2 = 0.45

0

3

6

9

12

20 40 60 80 100

Economic Freedom

Economist Intelligence Unit Democracy Index


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Economic Freedom Reduces Poverty

Sources: Terry Miller and Kim R. Holmes, 2010 Index of Economic Freedom (Washington, D.C.: The Heritage Foundation and Dow Jones & Company, Inc., 2010), at www.heritage.org/index; Human Development Reports, United Nations Human Development Programme, at http://hdr.undp.org/en/reports/


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Economic Freedom Promotes Human Development

Sources: Terry Miller and Kim R. Holmes, 2010 Index of Economic Freedom (Washington, D.C.: The Heritage Foundation and Dow Jones & Company, Inc., 2010), at www.heritage.org/index; Human Development Reports, United Nations Human Development Programme, at http://hdr.undp.org/en/statistics/

0.9570.906

0.819

0.620 0.630

0.0

0.3

0.5

0.8

1.0

Free Mostly Free Moderately Free Mostly Unfree Repressed

Economic Freedom

United Nation's Human Development Index

Correlation: 0.63R2 = 0.40


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Freedom of Press Promotes Economic Freedom

Sources: Terry Miller and Kim R. Holmes, 2010 Index of Economic Freedom (Washington, D.C.: The Heritage Foundation and Dow Jones & Company, Inc., 2010), at www.heritage.org/index; World Bank, 2008 Freedom of the Press Word Rating

Correlation: 0.63

R2 = 0.39

0

20

40

60

80

100

121416181

Freedom of Press

Economic Freedom

Least Free Most Free

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Economic Freedom Attracts Foreign Direct Investment

Sources: Terry Miller and Kim R. Holmes, 2010 Index of Economic Freedom (Washington, D.C.: The Heritage Foundation and Dow Jones & Company, Inc., 2010), at www.heritage.org/index; World Bank, 2008 Freedom of the Press Word Rating

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Economic Freedom is Key to Overall Well-Being


Correlation: 0.79

R2 = 0.62

1

21

41

61

81

101

160119178

Index of Economic Freedom Rank

Prosperity Index Rank

Sources: Terry Miller and Kim R. Holmes, 2010 Index of Economic Freedom (Washington, D.C.: The Heritage Foundation and Dow Jones & Company, Inc., 2010), at www.heritage.org/index; 2009 Legatum Prosperity Index: An Inquiry into Global Wealth and Wellbeing, at http://www.prosperity.com/downloads/2009LegatumProsperityIndexReport.pdf.

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How to Achieve Better Environmental Protection?Not by Meetings after Meetings…


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Economic Freedom Promotes a Clean Environment

Sources: Terry Miller and Kim R. Holmes, 2010 Index of Economic Freedom (Washington, D.C.: The Heritage Foundation and Dow Jones & Company, Inc., 2010), at www.heritage.org/index; Daniel C. Esty, M. A. Levy, C. H. Kim, A. de Sherbinin, T. Srebotnjak, and V. Mara, 2008 Environmental Performance Index (New Haven: Yale Center for Environmental Law and Policy, 2008), at http://epi.yale.edu/Framework.

Correlation: 0.56

86.783.4

77.3

64.963.8

FreeMostly FreeModerately FreeMostly UnfreeRepressed

Economic Freedom

Average Score of the Environmental Performance Index


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Three Informative Chapters of the 2010 Index

• Trading for Prosperity by the Honorable Elaine Chao

• Economic Freedom and Crisis Performance in Asia by Derek Scissors, Ph.D.

• Access to Information:

Vital for Efficient Markets & Economic Reform by James Roberts


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For the first time ever, the U.S. has dropped out of the free category and fallen to mostly free in the 2010 Index of Economic Freedom. Of the world’s 20 largest economies, the U.S. has suffered the largest drop in economic freedom. It’s clear why our economy is failing to generate jobs. To see other highlights from the 2010 Index of Economic Freedom click here.

For More Information, Please Visit www.heritage.org/index

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Thank You!


Q and A Session

1 index of economic freedom 2010 index presentation jakarta, indonesia june 25, 2010 james m....

Documents

monetary freedom imf

business freedom world

investment freedom eiu

financial freedom eiu

labor freedom world

fiscal freedom oecd

index slide

economic freedoms