Economic
Freedom of the
World: 2008
Annual Report
James Gwartney
Florida State University
Robert Lawson
Auburn University
Measuring Economic Freedom
•
Economic freedom is complex and
multidimensional, but it can be
measured:
• Personal choice
• Freedom to trade, domestically and
abroad.
• Freedom to enter and compete in
markets.
• Security of Property/Rule of Law
Methodology
•
•
•
We collect data on 141 countries using 42 different
components (grouped into five broad areas).
0-10 ratings are constructed to measure the degree to
which the country conforms to the free-market ideal.
Third-Party data from World Bank, IMF, Global
Competitiveness Report, IMD, etc.
• Objective data
• Survey data
•
Transparency is a highly valued part of the project.
5 Areas of Economic Freedom of
the World (EFW) Index
1.
2.
3.
4.
5.
Size of Government: Expenditures,
Taxes, and Enterprises
Legal Structure and Security of
Property Rights
Access to Sound Money
Freedom to Trade Internationally
Regulation of Credit, Labor, and
Business
Highest Economic Freedom
Ratings, 2006
Source: EFW 2008, Exhibit 1.2.
Economic Freedom Ratings of
Selected Countries, 2006
Source: EFW 2008, Exhibit 1.2.
Average Economic Freedom
Rating, 1980-2006*
*Chain-linked index.
Source: EFW 2008, Exhibit 1.4.
Economic Freedom and Income
Source: EFW 2008, Exhibit 1.6.
Economic Freedom and Growth
Source: EFW 2008, Exhibit 1.7.
Economic Freedom and Growth
•
EF (and changes in EF) are highly
correlated with economic growth.
• deHaan et al. (2006) survey the literature: Most
studies analysing the relationship between
economic growth and EF have employed crosscountry (or panel) growth models...It is clear
from these studies that EF seems to have a
positive association with growth. None of the
studies summarized reports that economic
freedom is bad for growth.
Economic Freedom and Income
Share of Poorest 10%
Source: EFW 2008, Exhibit 1.11.
Economic Freedom and Income
Level of Poorest 10%
Source: EFW 2008, Exhibit 1.12.
Economic Freedom and Life
Expectancy
Source: EFW 2008, Exhibit 1.13.
Economic Freedom and Political
Rights/Civil Liberties
Source: EFW 2008, Exhibit 1.15. [Note: Lower values indicate
greater political rights and civil liberties.]
Economic Freedom and the
Environment
Source: EFW 2008, Exhibit 1.16. [Note: Higher values indicate
greater environmental performance.]
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