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Index of Economic Freedom
2010 Index Presentation
Jakarta, Indonesia
June 25, 2010
James M. Roberts
Research Fellow for
Economic Freedom and Growth
Center for International Trade and Economics
The Heritage Foundation
1
Index of Economic Freedom
1995 to 2010: 16 Years of the Index of Economic Freedom
2
Index of Economic Freedom
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
3
Index of Economic Freedom
Measuring Economic Freedom
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Business Freedom
Trade Freedom
Fiscal Freedom
Government Spending
Monetary Freedom
Investment Freedom
Financial Freedom
Property Rights
Freedom from Corruption
Labor Freedom
•Each freedom is measured between 0 and 100.
•Overall economic freedom score is a simple average of
the 10 freedoms (equal weighting).
4
Index of Economic Freedom
Major Information Sources
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Business Freedom
Trade Freedom
Fiscal Freedom
Government Spending
Monetary Freedom
Investment Freedom
Financial Freedom
Property Rights
Freedom from Corruption
Labor Freedom
- World Bank Doing Business
- World Bank & WTO (Trade Policy Review)
- OECD, IMF, Ernst and Young, & Deloitte
- OECD, IMF, & World Bank
- IMF, EIU, & central banks
- EIU, IMF, World Bank,& DOC
- EIU, IMF, World Bank, & DOC
- USDOC, USDOS, IMF, & EIU
- Transparency International
- World Bank Doing Business
•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.
5
Index of Economic Freedom
Ten Economic Freedoms: Global Averages
0
50
100
59.4
Overall Economic Freedom
64.6
Business Freedom
74.2
Trade Freedom
75.4
Fiscal Freedom
65
Gov't Spending
Monetary Freedom
70.6
Investment Freedom
48.9
Financial Freedom
48.6
Property Rights
Freedom from Corruption
Labor Freedom
43.8
40.5
62.1
6
Index of Economic Freedom
Which Countries Enjoy More Economic Freedom?
Top 10
Bottom 10
“Free”
1.
2.
3.
4.
5.
6.
7.
Hong Kong
Singapore
Australia
New Zealand
Ireland
Switzerland
Canada
“Mostly Free”
8. United States
9. Denmark
10. Chile
179.
178.
177.
176.
175.
174.
173.
172.
171.
170.
North Korea
Zimbabwe
Cuba
Eritrea
Burma
Venezuela
Libya
Dem. Rep. of Congo
Turkmenistan
Solomon Island
7
Index of Economic Freedom
Asia-Pacific’s Performance in the 2010 Index
8
Index of Economic Freedom
Economic Freedom by Region
9
Index of Economic Freedom
Indonesia's Economic Freedom
10
Index of Economic Freedom
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
11
Index of Economic Freedom
Malaysia's Economic Freedom
12
Index of Economic Freedom
Cambodia's Economic Freedom
13
Index of Economic Freedom
Vietnam's Economic Freedom
14
Index of Economic Freedom
Singapore’s Economic Freedom
15
Index of Economic Freedom
Global Recovery:
Keynesianism Is Not The Answer
•
•
Failure of Government Spending/Fiscal
Stimulus to sustain recovery
Collapse of welfare state model
16
Index of Economic Freedom
How the 20 Largest Economies Performed
Score changes from the 2009 Index to the 2010 Index
-0.1
-0.5
-0.5
-0.6
-1.1
-2.0
-2.0
-2.2
-2.5
-2.7
Canada
Spain
Russia
India
Brazil
Belgium
Netherlands
China
UK
U.S.
0
Australia
0.1
Japan
0.6
Germany
0.9
France
1.3
Italy
1.8
South Korea
2.1
Indonesia
2.2
Turkey
2.5
Mexico
Poland
2.9
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.
17
Index of Economic Freedom
Higher Government Spending? Lower Growth …
18
Index of Economic Freedom
Fiscal Stimulus – No Impact on Growth
19
Index of Economic Freedom
Economic Freedom Matters
•
•
•
•
•
•
Higher per Capita Economic Growth
Poverty Reduction
Improved Good Governance
Enhanced Human Development
Increased Investment
Better Environmental Quality
20
Index of Economic Freedom
Economic Freedom is Key to Prosperity
GDP per Capita (in constant 2000 US$)
Correlation: 0.67
R2 = 0.45
$60,000
$45,000
$30,000
$15,000
$-
20
40
60
80
100
Economic Freedom
Sources: Terry Miller and Kim R. Holmes, 2010 Index of Economic Freedom (Washington, D.C.: The Heritage Foundation and Dow Jones & Company, Inc.,
2010), at www.heritage.org/index; World Bank, World Development Indicator Online, www.worldbank.org/data
21
Index of Economic Freedom
The Greater Economic Freedom, The Higher Standard of Living
GDP per Capita (in constant 2000 US$)
$30,000
$28,091
$25,000
$23,253
$20,000
$15,000
$10,000
$6,819
$5,000
$1,478
$1,796
Mostly Unfree
Repressed
$-
Free
Mostly Free
Moderately Free
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, World Development Indicator Online, www.worldbank.org/data
22
Index of Economic Freedom
Economic Freedom Promotes Good Governance
Economist Intelligence Unit Democracy Index
12
Correlation: 0.67
R2 = 0.45
9
6
3
0
20
40
60
80
100
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; the Economist Intelligence Unit’s Index of Democracy, Country Forecasting Services, Economist Intelligence Unit, at
http://graphics.eiu.com/PDF/Democracy%20Index%202008.pdf
23
Index of Economic Freedom
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/
24
Index of Economic Freedom
Economic Freedom Promotes Human Development
United Nation's Human Development Index
1.0
0.957
Correlation: 0.63
R2 = 0.40
0.906
0.819
0.8
0.620
0.630
Mostly Unfree
Repressed
0.5
0.3
0.0
Free
Mostly Free
Moderately Free
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; Human Development Reports, United Nations Human Development Programme, at http://hdr.undp.org/en/statistics/
25
Index of Economic Freedom
Freedom of Press Promotes Economic Freedom
Economic Freedom
100
Correlation: 0.63
R2 = 0.39
80
60
40
20
0
Least Free
81
61
41
21
Most Free
1
Freedom of Press
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
26
Index of Economic Freedom
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
27
Index of Economic Freedom
Economic Freedom is Key to Overall Well-Being
Prosperity
Index Rank
1
Correlation: 0.79
R2 = 0.62
21
41
61
81
101
178
119
60
1
Index of Economic Freedom 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.
28
Index of Economic Freedom
How to Achieve Better Environmental Protection?
Not by Meetings after Meetings…
29
Index of Economic Freedom
Economic Freedom Promotes a Clean Environment
Average Score of the Environmental Performance Index
Correlation: 0.56
83.4
86.7
77.3
63.8
64.9
Repressed
Mostly Unfree
Moderately Free
Mostly Free
Free
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; 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.
30
Index of Economic Freedom
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
31
Index of Economic Freedom
For More Information, Please Visit
www.heritage.org/index
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.
32
Index of Economic Freedom
Thank You!
Q and A Session
33
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