Economic Freedom of the

World: 2008 Annual Report

James GwartneyFlorida State University

Robert LawsonAuburn 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. Size of Government: Expenditures, Taxes, and Enterprises

2. Legal Structure and Security of Property Rights

3. Access to Sound Money 4. Freedom to Trade Internationally 5. Regulation of Credit, Labor, and

Business

Source: EFW 2008, Exhibit 1.2.

Highest Economic Freedom Ratings, 2006

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 cross-country (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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