Economic Freedom of the Economic Freedom of the World: 2008 Annual ReportWorld: 2008 Annual Report

Fraser Institute

September 16, 2008

THANK YOU FOR COMING!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

Economic Freedom of the Economic Freedom of the World ProjectWorld Project

Objective: find a way to measure economic freedom and explore the connection between it and other indicators

20 year project Led by the late Milton Friedman, Rose Friedman

and Michael Walker Involved 60 of the world’s top scholars, including

three Nobel Laureates: Milton Friedman, Douglass North, and Gary Becker

What is the Economic What is the Economic Freedom of the World Index?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 76 different nations and territories

What is Economic Freedom?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 Components of the Economic

Freedom of the World IndexFreedom of the World Index

Size of government and taxationPrivate property and the rule of lawSoundness of moneyTrade regulation and tariffsRegulation of business, labour and capital

markets

Talk about making a difference …Talk about making a difference …

Albanian Center for Economic Albanian Center for Economic Research (ACER), AlbaniaResearch (ACER), AlbaniaFundación Libertad, ArgentinaFundación Libertad, ArgentinaInstitute of Public Affairs, AustraliaInstitute of Public Affairs, AustraliaTIGRA®, AustriaTIGRA®, AustriaCenter for Economic and Political Center for Economic and Political Research, AzerbaijanResearch, AzerbaijanThe Nassau Institute, BahamasThe Nassau Institute, BahamasMaking Our Economy Right (MOER), Making Our Economy Right (MOER), BangladeshBangladeshScientific Research Mises Center, Scientific Research Mises Center, BelarusBelarusCentre for the New Europe, BelgiumCentre for the New Europe, BelgiumFundacion Libertad y Democracia Fundacion Libertad y Democracia (FULIDE), Bolivia(FULIDE), BoliviaInstituto Liberal do Rio de Janeiro, Instituto Liberal do Rio de Janeiro, BrazilBrazilInstitute for Market Economics, Institute for Market Economics, BulgariaBulgariaLe Centre des Affaires Humaines Le Centre des Affaires Humaines (CEDAH), Burkina Faso(CEDAH), Burkina FasoCambodia Institute of Development Cambodia Institute of Development Study, Cambodia Study, Cambodia The Fraser Institute, CanadaThe Fraser Institute, CanadaInstituto Libertad y Desarrollo, ChileInstituto Libertad y Desarrollo, ChileInstituto Libertad y Progreso (ILP), Instituto Libertad y Progreso (ILP), ColombiaColombiaInstituto para la Libertad y el Instituto para la Libertad y el Análisis de Políticas, Costa RicaAnálisis de Políticas, Costa RicaThe Institute of Economics, CroatiaThe Institute of Economics, CroatiaLiberální Institut, Czech RepublicLiberální Institut, Czech RepublicCenter for Politiske Studier (CEPOS), Center for Politiske Studier (CEPOS), DenmarkDenmarkFundación Economía y Desarrollo Fundación Economía y Desarrollo Inc., Dominican RepublicInc., Dominican RepublicInstituto Ecuatoriano de Economía Instituto Ecuatoriano de Economía Política, EcuadorPolítica, Ecuador International University Audentes, Audentes University, EstoniaAssociation pour la Liberté Economique et le Progrès Social (ALEPS), France

Center for Business and Society Incorporated (Civita), Center for Business and Society Incorporated (Civita), Norway Norway International Research Foundation (IRF), OmanInternational Research Foundation (IRF), OmanAlternate Solutions Institute, PakistanAlternate Solutions Institute, PakistanPal-Think for Strategic Studies, PalestinePal-Think for Strategic Studies, PalestineFundación Libertad, PanamaFundación Libertad, PanamaCentro de Investigación y Estudios Legales Centro de Investigación y Estudios Legales (CITEL), Peru(CITEL), PeruThe Center for Research and Communication, The Center for Research and Communication, PhilippinesPhilippinesCentrum im. Adama Smitha, PolandCentrum im. Adama Smitha, PolandCausa Liberal, PortugalCausa Liberal, PortugalRomania Think Tank, RomaniaRomania Think Tank, RomaniaInstitute of Economic Analysis, RussiaInstitute of Economic Analysis, RussiaFree Market Center (FMC), Serbia Free Market Center (FMC), Serbia The F.A. Hayek Foundation, Slovak RepublicThe F.A. Hayek Foundation, Slovak RepublicFree Society Institute (FSI), SloveniaFree Society Institute (FSI), SloveniaThe Free Market Foundation of Southern The Free Market Foundation of Southern Africa, South AfricaAfrica, South AfricaPathfinder Foundation, Sri LankaPathfinder Foundation, Sri LankaTimbro, SwedenTimbro, SwedenLiberales Institut, SwitzerlandLiberales Institut, SwitzerlandArthur Lok Jack Graduate School of Business, Arthur Lok Jack Graduate School of Business, The University of the West Indies, Trinidad The University of the West Indies, Trinidad and Tobagoand TobagoAssociation for Liberal Thinking, TurkeyAssociation for Liberal Thinking, TurkeyThe Ukrainian Center for Independent The Ukrainian Center for Independent Political Research, UkrainePolitical Research, UkraineThe Institute of Economic Affairs (IEA), The Institute of Economic Affairs (IEA), United KingdomUnited KingdomCATO Institute, USACATO Institute, USAThe Centre for the Dissemination of The Centre for the Dissemination of Economic Knowledge (CEDICE), VenezuelaEconomic Knowledge (CEDICE), VenezuelaResearch Center for Entrepreneurship Research Center for Entrepreneurship Development, VietnamDevelopment, VietnamZambia Institute for Public Policy Analysis Zambia Institute for Public Policy Analysis (ZIPPA), Zambia(ZIPPA), Zambia

Member Institutes of Economic Freedom of the World Network

Society for Disseminating Economic Society for Disseminating Economic Knowledge:“New Economic School – Knowledge:“New Economic School – Georgia”, GeorgiaGeorgia”, GeorgiaLiberales Institut, GermanyLiberales Institut, GermanyThe Institute of Economic Affairs, GhanaThe Institute of Economic Affairs, GhanaCentro de Investigaciones Económicas Centro de Investigaciones Económicas Nacionales, GuatemalaNacionales, GuatemalaInstitut de Recherche pour la Liberte Institut de Recherche pour la Liberte Economique et la Prosperite (IRLEP), HaitiEconomique et la Prosperite (IRLEP), HaitiHong Kong Centre for Economic Research, Hong Kong Centre for Economic Research, Hong KongHong KongSzazadveg Foundation, HungarySzazadveg Foundation, HungaryCentre for Social and Economic Research Centre for Social and Economic Research (RSE), Iceland(RSE), IcelandCentre for Civil Society, IndiaCentre for Civil Society, IndiaThe Institute for Development of Economics The Institute for Development of Economics and Finance, Indonesiaand Finance, IndonesiaOpen Republic Institute, IrelandOpen Republic Institute, IrelandJerusalem Institute for Market Studies, Jerusalem Institute for Market Studies, IsraelIsraelCentro Einaudi, ItalyCentro Einaudi, ItalyBureau d'Analyse d'Ingenierie et de Bureau d'Analyse d'Ingenierie et de Logiciels (BAILO), Ivory CoastLogiciels (BAILO), Ivory CoastAfrican Research Center for Public Policy African Research Center for Public Policy and Market Process, Kenyaand Market Process, KenyaCenter for Free Enterprise, KoreaCenter for Free Enterprise, KoreaEconomic Policy Institute-Bishkek Economic Policy Institute-Bishkek Consensus, Kyrgyz RepublicConsensus, Kyrgyz RepublicLithuanian Free Market Institute, LithuaniaLithuanian Free Market Institute, LithuaniaD'Letzeburger Land, LuxembourgD'Letzeburger Land, LuxembourgCentro de Investigación para el Desarrollo Centro de Investigación para el Desarrollo A.C., MexicoA.C., MexicoOpen Society Forum, MongoliaOpen Society Forum, MongoliaThe Center for Entrepreneurship and The Center for Entrepreneurship and Economic Development (CEED), MontenegroEconomic Development (CEED), MontenegroThe Prosperity Foundation, NepalThe Prosperity Foundation, NepalThe New Zealand Business Roundtable, New The New Zealand Business Roundtable, New ZealandZealandInstitute of Public Policy Analysis, NigeriaInstitute of Public Policy Analysis, Nigeria

Sample of Press Coverage forFraser Institute’ Economic Freedom of the World 2007

All Africa, AfricaAll Africa, AfricaBusiness Day, AfricaBusiness Day, AfricaBusiness.lafrica.com, AfricaBusiness.lafrica.com, AfricaLa NacionLa Nacion, Argentina, ArgentinaUniversia, ArgentinaUniversia, ArgentinaHetq Online, ArmeniaHetq Online, ArmeniaGulf Daily News, Gulf Daily News, BahrainBahrainZero Hora, BrazilZero Hora, BrazilPortal Acionista, BrazilPortal Acionista, BrazilO'Globo, BrazilO'Globo, BrazilSofia Echo, BulgariaSofia Echo, BulgariaBulgarian Paper, BulgariaBulgarian Paper, BulgariaCalgary Sun, CanadaCalgary Sun, CanadaGlobe and Mail, CanadaGlobe and Mail, CanadaNational Post, CanadaNational Post, CanadaToronto Sun, CanadaToronto Sun, CanadaToronto Star, CanadaToronto Star, CanadaVancouver Sun, CanadaVancouver Sun, CanadaChina Post, ChinaChina Post, ChinaChina Knowledge online, ChinaChina Knowledge online, ChinaXinhua News, China Xinhua News, China Chinese Paper, ChinaChinese Paper, ChinaBusiness Day, ColombiaBusiness Day, ColombiaListin Diaro, Dominican RepublicListin Diaro, Dominican RepublicEl Universon, EcuadorEl Universon, EcuadorFaz.net, GermanyFaz.net, GermanyGerman paper, GermanyGerman paper, GermanyDie Presse, GermanyDie Presse, GermanyHong Kong Daily, Hong KongHong Kong Daily, Hong KongLiving in Hong Kong, Hong KongLiving in Hong Kong, Hong KongPortfolio, HungaryPortfolio, HungaryBusiness Standard, IndiaBusiness Standard, IndiaIndia Paper, IndiaIndia Paper, India

Dawn, PakistanDawn, PakistanInvertia Peru, PeruInvertia Peru, PeruPhilippine Daily Enquirer, PhilippinesPhilippine Daily Enquirer, PhilippinesPoland Press, PolandPoland Press, PolandRompres, RomaniaRompres, RomaniaRussian Paper, RussiaRussian Paper, RussiaBlic Online, SerbiaBlic Online, SerbiaFinance, SloveniaFinance, SloveniaIzvoznookno, SloveniaIzvoznookno, SloveniaSlovanian Press agency, SloveniaSlovanian Press agency, SloveniaThe Strait Times, SingaporeThe Strait Times, SingaporeIVO.co.za, South AfricaIVO.co.za, South AfricaMail and Guardian, South AfricaMail and Guardian, South AfricaNews 24, South AfricaNews 24, South AfricaActualidad Economica, SpainActualidad Economica, SpainAgencia EFE, SpainAgencia EFE, SpainEuropa Press, Servicio Economico, Europa Press, Servicio Economico, SpainSpainInvertia, SpainInvertia, SpainTerra Espana, SpainTerra Espana, SpainSudanile website, SudanSudanile website, SudanAl Khaleej Newspaper, UAEAl Khaleej Newspaper, UAEKhaleej Times, UAEKhaleej Times, UAEBull & Bear Financial Report, USBull & Bear Financial Report, USBusiness Journal, USBusiness Journal, USOpEdNews.com (Newtown,PA)OpEdNews.com (Newtown,PA)Public Choice, USPublic Choice, USTradingMarkets.com, USTradingMarkets.com, USWall Street Journal, USWall Street Journal, USYahoo Finance, USYahoo Finance, USEl Universal, VenezuelaEl Universal, VenezuelaEl Nacional, VenezuelaEl Nacional, VenezuelaInvertia, VenezuelaInvertia, VenezuelaBusiness News, ZambiaBusiness News, ZambiaZimbabwe Guardian, ZimbabweZimbabwe Guardian, ZimbabweZimbabwe Standard, ZimbabweZimbabwe Standard, Zimbabwe

Business Standard, InternationalBusiness Standard, InternationalEl Economista, InternationalEl Economista, InternationalEconomist, InternationalEconomist, InternationalUS4Arabs, InternationalUS4Arabs, InternationalReuters, InternationalReuters, InternationalGlobes Israel, IsraelGlobes Israel, IsraelIsrael Business Area, IsraelIsrael Business Area, IsraelJerusalem Post, IsraelJerusalem Post, IsraelIl Sole, ItalyIl Sole, ItalyAl Ghad, JordanAl Ghad, JordanAlrai Newspaper, JordanAlrai Newspaper, JordanAddustour Newspaper, JordanAddustour Newspaper, JordanGreaterkashmir.com, KashmirGreaterkashmir.com, KashmirDonga Daily, KoreaDonga Daily, KoreaSegye Daily, KoreaSegye Daily, KoreaBaltic Business Weekly, LatviaBaltic Business Weekly, LatviaLatvian News Agency, LatviaLatvian News Agency, LatviaBaltic Business Weekly, LatviaBaltic Business Weekly, LatviaNufooz web, LebanonNufooz web, LebanonEdge Financial, MalaysiaEdge Financial, MalaysiaEdge Daily, MalaysiaEdge Daily, MalaysiaAgencia Mexicana de Noticias, MexicoAgencia Mexicana de Noticias, MexicoLa Jordana, MexicoLa Jordana, MexicoLa Cronica, MexicoLa Cronica, MexicoUB Post, MongoliaUB Post, MongoliaRepublika, MontenegroRepublika, MontenegroMarket Montenegro, MontenegroMarket Montenegro, MontenegroScoop, New ZealandScoop, New ZealandPress, New ZealandPress, New ZealandArabic Paper, OmanArabic Paper, OmanOman Tribune, OmanOman Tribune, OmanTimes of Oman, OmanTimes of Oman, OmanPakistan Press International, PakistanPakistan Press International, PakistanThe Post, PakistanThe Post, PakistanPakistan Defence, PakistanPakistan Defence, PakistanAHN, PakistanAHN, Pakistan

Sub-national and Regional IndicesSub-national and Regional Indices

Economic Freedom of the Arab WorldEconomic 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 AmericaEconomic Freedom of North America

Introducing the 2008 Economic Introducing the 2008 Economic Freedom of the World Index ResultsFreedom of the World Index Results

Overall Economic Freedom Overall Economic Freedom Index and the Top 10Index and the Top 10

Source: The Fraser Source: The Fraser Institute.Institute.

0 2 4 6 8 10

Score (out of 10)

Hong Kong

Singapore

New Zealand

Average of top 10

Switzerland

United Kingdom

Chile

Canada

Australia

United States

Ireland

Overall Economic Freedom Overall Economic Freedom Index and the Bottom TenIndex and the Bottom Ten

0 2 4 6 8 10

Score (out of 10)

Chad

Central Afr. Rep.

Guinea-Bissau

Congo, Dem. R.

Venezuela

Niger

Congo, Rep. Of

Myanmar

Angola

Zimbabwe

Source: The Fraser Source: The Fraser Institute.Institute.

Economic Freedom Over TimeEconomic Freedom Over Time

6.15.5 5.4 5.5 5.7 6.0

6.4 6.4 6.4 6.4 6.4 6.6 6.6

0

2

4

6

8

10

Eco

no

mic

Fre

edo

m S

core

1970 1975 1980 1985 1990 1995 2000 2001 2002 2003 2004 2005 2006

Source: The Fraser Source: The Fraser Institute.Institute.

Economic Freedom and the Top 10Economic Freedom and the Top 10

Size of Government and the Top 10Size of Government and the Top 10

0 2 4 6 8 10

Score (out of 10)

Hong Kong

Switzerland

Singapore

Chile

Average of top 10

United States

Canada

Australia

New Zealand

United Kingdom

Ireland

Source: The Fraser Source: The Fraser Institute.Institute.

Legal System and Property Rights Legal System and Property Rights and the Top 10and the Top 10

0 2 4 6 8 10

Score (out of 10)

New Zealand

Australia

Switzerland

Singapore

Canada

United Kingdom

Average of top 10

Hong Kong

Ireland

United States

Chile

Source: The Fraser Source: The Fraser Institute.Institute.

Sound Money and the Top 10Sound Money and the Top 10

0 2 4 6 8 10

Score (out of 10)

United States

Canada

Switzerland

Ireland

Australia

United Kingdom

Average of top 10

Hong Kong

New Zealand

Chile

Singapore

Source: The Fraser Source: The Fraser Institute.Institute.

Freedom to Trade Internationally Freedom to Trade Internationally and the Top 10and the Top 10

0 2 4 6 8 10

Score (out of 10)

Hong Kong

Singapore

Chile

Ireland

Average of top 10

New Zealand

United Kingdom

United States

Australia

Canada

Switzerland

Source: The Fraser Source: The Fraser Institute.Institute.

Regulations and the Top 10Regulations and the Top 10

0 2 4 6 8 10

Score (out of 10)

New Zealand

Hong Kong

United States

United Kingdom

Chile

Singapore

Canada

Average of top 10

Switzerland

Australia

Ireland

Source: The Fraser Source: The Fraser Institute.Institute.

Credit Market Regulations Credit Market Regulations and the Top 10and the Top 10

0 2 4 6 8 10

Score (out of 10)

New Zealand

United Kingdom

Australia

United States

Canada

Average of top 10

Singapore

Chile

Hong Kong

Switzerland

Ireland

Source: The Fraser Source: The Fraser Institute.Institute.

Labor Market Regulations Labor Market Regulations and the Top 10and the Top 10

0 2 4 6 8 10

Score (out of 10)

United States

Hong Kong

Chile

New Zealand

Switzerland

Average of top 10

United Kingdom

Canada

Australia

Singapore

Ireland

Source: The Fraser Source: The Fraser Institute.Institute.

Business Regulations Business Regulations and the Top 10and the Top 10

0 2 4 6 8 10

Score (out of 10)

Singapore

Hong Kong

New Zealand

Canada

Switzerland

Average of top 10

Australia

Ireland

United Kingdom

Chile

United States

Source: The Fraser Source: The Fraser Institute.Institute.

Why is Economic Freedom Why is Economic Freedom Important?Important?

Economic rights are fundamental rights in the sense that without them there can be no political or civil freedoms

They are a prerequisite for growth and development

They are a prerequisite for broader human development

The impact on economic growth The impact on economic growth and developmentand development

Income (per person) of the Income (per person) of the Bottom TenBottom Ten

0 10,000 20,000 30,000 40,000 50,000

GDP per Capita, 2006 (ppp)

Venezuela

Angola

Congo, Rep. Of

Chad

Myanmar

Central Afr. Rep.

Niger

Guinea-Bissau

Congo, Dem. R.

Sources: The Fraser Institute; The World Bank, World Development Sources: The Fraser Institute; The World Bank, World Development Indicators, Indicators, 2008.2008.

Income (per person) of the Top 10Income (per person) of the Top 10

$0 $10,000 $20,000 $30,000 $40,000 $50,000

GDP per Capita, 2006 (ppp)

SingaporeUnited States

IrelandHong KongSwitzerland

CanadaAustralia

United KingdomNew Zealand

Chile

Sources: The Fraser Institute; The World Bank, World Development Sources: The Fraser Institute; The World Bank, World Development Indicators, Indicators, 2008.2008.

Per Capita Income and Economic Per Capita Income and Economic Freedom QuartileFreedom Quartile

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

GD

P P

er C

apit

a (p

pp

), 2

006

Most FreeQuartile

2nd Quartile3rd QuartileLeast FreeQuartile

Least Free ………………... Most FreeLeast Free ………………... Most FreeSources: The Fraser Institute; The World Bank, World Development Sources: The Fraser Institute; The World Bank, World Development Indicators, Indicators, 2008.2008.

Foreign Direct Investment and Foreign Direct Investment and Economic Freedom QuartileEconomic Freedom Quartile

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

Fo

reig

n d

ire

ct

inv

es

tme

nt,

ne

t in

flo

ws

(%

of

GD

P),

19

90

-20

06

Most FreeQuartile

2nd Quartile3rd QuartileLeast FreeQuartile

Least Free ……………...…... Most FreeLeast Free ……………...…... Most Free

Sources: The Fraser Institute; The World Bank, World Development Indicators, Sources: The Fraser Institute; The World Bank, World Development Indicators, 2008.2008.

Economic Freedom,the Poor, andEconomic Freedom,the Poor, andInequalityInequality

Income Share of the Poorest 10% and Income Share of the Poorest 10% and

Economic FreedomEconomic Freedom

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

Inco

me S

hare

Held

by

Lo

west

10%

, 1990-2

006

Most FreeQuartile

2ndQuartile

3rdQuartile

Least FreeQuartile

Least Free …………….. Most FreeLeast Free …………….. Most FreeSources: The Fraser Institute; The World Bank, World Development Indicators, Sources: The Fraser Institute; The World Bank, World Development Indicators,

2008.2008.

39

Income Level of the Poorest 10% and Income Level of the Poorest 10% and

Economic FreedomEconomic Freedom

$0$1,000$2,000$3,000$4,000$5,000$6,000$7,000$8,000$9,000

Inco

me L

evel

of

the

Po

ore

st

10%

, 1990-2

006

Most FreeQuartile

2ndQuartile

3rdQuartile

Least FreeQuartile

Least Free …………….. Most FreeLeast Free …………….. Most FreeSources: The Fraser Institute; The World Bank, World Development Indicators, Sources: The Fraser Institute; The World Bank, World Development Indicators,

2008.2008.

Economic Freedom, Other Economic Freedom, Other Freedoms and DemocracyFreedoms and Democracy

Economic Freedom and Political RightsEconomic Freedom and Political Rights Higher ratings indicate higher levels of political rightsHigher ratings indicate higher levels of political rights

0.0

2.0

4.0

6.0

8.0

10.0

Po

liti

cal

Rig

hts

(o

ut

of

10)

Most FreeQuartile

2nd Quartile3rd QuartileLeast FreeQuartile

Least Free …………………. Most FreeLeast Free …………………. Most Free

Sources: The Fraser Institute; Freedom House, Freedom in the World Country Ratings, Sources: The Fraser Institute; Freedom House, Freedom in the World Country Ratings, 2006, available at http://www.freedomhouse.org/.2006, available at http://www.freedomhouse.org/.

Economic Freedom and Civil LibertiesEconomic Freedom and Civil Liberties Higher ratings indicate higher levels of civil libertiesHigher ratings indicate higher levels of civil liberties

0.0

2.0

4.0

6.0

8.0

10.0

Civ

il L

iber

ties

(o

ut

of

10)

Most FreeQuartile

2nd Quartile3rd QuartileLeast FreeQuartile

Least Free …………………… Most FreeLeast Free …………………… Most Free Sources: The Fraser Institute; Freedom House, Freedom in the World Country Sources: The Fraser Institute; Freedom House, Freedom in the World Country Ratings, 2006, available at http://www.freedomhouse.org/.Ratings, 2006, available at http://www.freedomhouse.org/.

Economic Freedom and CorruptionEconomic Freedom and CorruptionLower values indicate lower levels of corruptionLower values indicate lower levels of corruption

0.0

2.0

4.0

6.0

8.0

10.0

Co

rru

pti

on

Ra

tin

g

(ou

t o

f 1

0)

Most FreeQuartile

2nd Quartile3rd QuartileLeast FreeQuartile

Least Free …………………. Most FreeLeast Free …………………. Most Free

Sources: The Fraser Institute; Transparency International, Corruption Perceptions Index, Sources: The Fraser Institute; Transparency International, Corruption Perceptions Index, 2006/2007, available at http://www.transparency.org.2006/2007, available at http://www.transparency.org.

The impact of Economic Freedom on The impact of Economic Freedom on the UN’s Human Development Index the UN’s Human Development Index and other indicators of well-beingand other indicators of well-being

Human Development Index and Economic Human Development Index and Economic Freedom QuartilesFreedom Quartiles

Higher ratings indicate higher levels of developmentHigher ratings indicate higher levels of development

0.0

0.2

0.4

0.6

0.8

1.0

Un

ited

Nat

ion

s H

um

an D

evel

op

men

t In

dex

Most FreeQuartile

2nd Quartile3rd QuartileLeast FreeQuartile

Least Free ……………. Most FreeLeast Free ……………. Most Free

Sources: The Fraser Institute; United Nations Development Programmme, Human Sources: The Fraser Institute; United Nations Development Programmme, Human Development Indicators 2008, available at http://hdr.undp.org/.Development Indicators 2008, available at http://hdr.undp.org/.

Life Expectancy at Birth and Life Expectancy at Birth and Economic Freedom QuartilesEconomic Freedom Quartiles

0

20

40

60

80

Yea

rs

Most FreeQuartile

2nd Quartile3rd QuartileLeast FreeQuartile

Least Free ……………. Most FreeLeast Free ……………. Most Free

Sources: The Fraser Institute; The World Bank, World Development Indicators, Sources: The Fraser Institute; The World Bank, World Development Indicators,

2008.2008.

Infant Mortality and Economic Infant Mortality and Economic Freedom QuartileFreedom Quartile

0

20

40

60

80

Per

1,0

00 li

ve b

irth

s, 2

006

Most FreeQuartile

2nd Quartile3rd QuartileLeast FreeQuartile

Least Free ………..………. Most FreeLeast Free ………..………. Most Free Sources: The Fraser Institute; The World Bank, World Development Indicators, Sources: The Fraser Institute; The World Bank, World Development Indicators,

2008.2008.

% of Population Using Improved % of Population Using Improved Water SourcesWater Sources

0

20

40

60

80

100

Per

cen

tag

e

Most FreeQuartile

2nd Quartile3rd QuartileLeast FreeQuartile

Least Free ………………... Most FreeLeast Free ………………... Most Free Sources: The Fraser Institute; The World Bank, World Development Indicators, Sources: The Fraser Institute; The World Bank, World Development Indicators,

2008.2008.

Environmental Performance and Economic Environmental Performance and Economic Freedom QuartileFreedom Quartile

Higher ratings indicate higher levels of environmental performanceHigher ratings indicate higher levels of environmental performance

0

20

40

60

80

100

Ind

ex (

ou

t o

f 10

0)

Most FreeQuartile

2nd Quartile3rd QuartileLeast FreeQuartile

Least Free ………..……….. Most FreeLeast Free ………..……….. Most Free Sources: The Fraser Institute; The World Bank, World Development Indicators, Sources: The Fraser Institute; The World Bank, World Development Indicators,

2008.2008.

New research:New research: Economic Freedom and World PovertyEconomic Freedom and World Poverty

Economic Freedom and World PovertyEconomic Freedom and World Poverty

Eradication of world poverty: a crucial matter for economist, policy makers and concerned citizens

Seth W. Norton and James D. Gwartney, in chapter 2, explore the relationship between economic freedom and poverty in developing nations

Economic Freedom and World PovertyEconomic Freedom and World Poverty

Facts Both the $1-per-day and the $2-per-day poverty rates

have declined since 1980

The weighted (by population) mean poverty rate indicates that the overall $1-per-day poverty rate of developing countries was nearly cut in half between 1980 and 2004 (from 32% to 17%)

Furthermore, various non-pecuniary indicators of poverty also imply that the well-being of the poor has improved during the past quarter of a century

53

Economic Freedom and World PovertyEconomic Freedom and World Poverty

Empirical Evidence

The results confirm a strong positive relationship between economic freedom and poverty reduction

Specifically, the weighted $1-per-day poverty rate was 29.7% in 2004 for countries with EFW ratings of less than 5, but only 7.7% for countries with EFW ratings between 6 and 7

And the $2-per-day poverty rate declines from 51.5% to 46.2% to 38.9% as one moves from the least (less than 5) to the most free (between 6 and 7) developing nations

A one-unit increase in economic freedom rating between 1980 and 1995 was associated with a 5.21 percentage-point reduction in the $1-per-day poverty rate and a 5.22 percentage-point reduction in the $2-per-day poverty rate

55

Economic Freedom and World PovertyEconomic Freedom and World Poverty

Empirical Evidence

The authors also examine the relationship between economic freedom and non-pecuniary set of poverty indicators:

• % of population with access to improved water• Life expectancy at birth, total (years)• Infant survival rate (per 1000)• Under-five survival rate (per 1000)• Physicians (per 1,000 people)• % of population with adequate nourishment• UN Human poverty index

The results shows once again that poverty rates are substantially lower in persistently free developing nations compare to the economies with lower levels of economic freedom

Economic Freedom and World PovertyEconomic Freedom and World Poverty

Empirical Evidence

72.6% of the population has access to safe water in the mostly unfree economies (less than 5) compared to nearly 100% in the mostly free developing nations (more than 7)

Life expectancy of people in the mostly free group is over 20-years greater than for those in mostly unfree developing economies

Mostly free economies have more than twice as many physicians per 1,000 population than mostly unfree economies

Economic Freedom and World PovertyEconomic Freedom and World Poverty

Empirical Evidence

For every 1,000 births, 64 more babies survive in mostly free developing countries per year than in the mostly unfree developing nations

For every thousand children under age of five, 109 more children survive in mostly free developing nations each year than in those countries that are mostly unfree

Policy ImplicationsPolicy Implications

Developing nations need to focus on increasing economic freedom to promote growth and reduce poverty

Reductions in poverty rates are closely related to institutions and policies consistent with economic freedom

Growth is the driving force behind reductions in poverty. Without economic growth, there will be little or no reduction in poverty

60

Policy Implications for AfricaPolicy Implications for Africa

The authors investigate high poverty levels in Sub- Saharan Africa and find these nations need to increase economic freedom. Specifically, they need to

Build the rule of law to protect property rights, encourage investment, and reduce corruption

Remove trade barriers so that African nations, which tend to have small domestic market, can achieve gains from trade

Simplify business regulations to encourage investment by eliminating unnecessary regulatory barriers, reduce corruption, and lower administrative costs on businesses

ConclusionsConclusions

Economic Freedom

Increases prosperity for allReduces poverty Increases other freedomsImproves quality of life

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