Economic Freedom of the World 2006 Annual Report

Economic Freedom of the World: 2006 Annual Report l Fraser Institute Policy Briefing l September 7, 2006 l Mark Mullins, Executive Director l Amela Karabegovic, Senior Research Economist 1

THANK YOU FOR COMING! l 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 l 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 2

Economic Freedom of the World Project l Objective: find a way to measure economic freedom and explore the connection between it and other variables l 20 year project l Led by Professor Milton Friedman, Rose Friedman and Michael Walker l Involved 60 of the world’s top scholars 3

What is The Economic Freedom of the World Index? u An annual compilation of data representing factors which make a country economically free u Authors: James Gwartney and Robert Lawson u A compendium of 38 government policies affecting economic freedom based on objective data or independent surveys u A ranking of 130 countries representing 93% of the world’s population according to the extent to which they permit their citizens to be economically free u Now a collaboration of Institutes in 71 different countries 4

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 5

Components of The Economic Freedom of the World Index l Size of government and taxation l Private property and the rule of law l Soundness of Money l Trade regulation and tariffs l Regulation of business, labour and capital markets l Based entirely on objective or third party data for 130 countries 6

Talk about making a difference … 7

Member Institutes of Economic Freedom of the World Albanian Center for Economic Network Research, Albania Fundación Libertad, Argentina Institute of Public Affairs, Australia TIGRA®, Austria Center for Economic and Political Research, Azerbaijan The Nassau Institute, Bahamas Making Our Economy Right (MOER), Bangladesh Scientific Research Mises Center, Belarus Centre for the New Europe, Belgium Fundacion Libertad y Democracia (FULIDE), Bolivia Instituto Liberal do Rio de Janeiro, Brazil Institute for Market Economics, Bulgaria Cambodia Institute of Development Study, Cambodia The Fraser Institute, Canada Instituto Libertad y Desarrollo, Chile Desarrollo, ILP- Instituto Libertad y Progreso, Colombia Instituto para la Libertad y el Análisis de Políticas, Costa Rica Políticas, The Institute of Economics, Croatia Liberální Institut, Czech Republic Center for Politiske Studier (CEPOS), Denmark Fundación Economía y Desarrollo Inc. , Dominican Republic Instituto Ecuatoriano de Economía Política, Ecuador Política, International University Concordia Audentes, Audentes University, Estonia Association pour la Liberté Economique et le Progrès Social (ALEPS), France Society for Disseminating Economic Knowledge: “New Economic School – Georgia”, Georgia Liberales Institut, Germany Alternate Solutions Institute, Pakistan The Institute of Economic Affairs, Ghana Fundación Libertad, Panama Centro de Investigaciones Económicas Centro de Investigación y Estudios Nacionales, Guatemala Legales (CITEL), Peru Institut de Recherche pour la Liberte The Center for Research and Economique et la Prosperite (IRLEP), Haiti Communication, Philippines Hong Kong Centre for Economic Research, Centrum im. Adama Smitha, Poland im. Smitha, Hong Kong Causa Liberal, Portugal Szazadveg Foundation, Hungary Romania Think Tank, Romania Centre for Social and Economic Research, Institute of Economic Analysis, Russia Iceland The F. A. Hayek Foundation, Slovak Centre for Civil Society, India Republic The Institute for Development of Economics The Free Market Foundation of Southern and Finance, Indonesia Africa, South Africa Open Republic Institute, Ireland Pathfinder Foundation , Sri Lanka Institute for Advanced Strategic and International Research Foundation (IRF), Political Studies, Israel Sultanate of Oman Centro Einaudi, Italy Timbro, Sweden Timbro, Bureau d'Analyse d'Ingenierie et de Liberales Institut, Switzerland Logiciels (BAILO), Ivory Coast Arthur Lok Jack Graduate School of African Research Center for Public Policy Business, The University of the West and Market Process, Kenya Indies, Trinidad, W. I. Center for Free Enterprise, Korea Association for Liberal Thinking, Turkey Economic Policy Institute-Bishkek The Ukrainian Center for Independent Consensus, Kyrgyz Republic Political Research, Ukraine Lithuanian Free Market Institute, Lithuania The Institute of Economic Affairs, United D'Letzeburger Land, Luxembourg Kingdom Centro de Investigación para el Desarrollo CATO Institute, USA A. C. , Mexico The Centre for the Dissemination of Open Society Forum, Mongolia Economic Knowledge (CEDICE), The Center for Entrepreneurship and Venezuela Economic Development, Montenegro Research Center for Entrepreneurship and The New Zealand Business Roundtable, New Development Policies, Vietnam Zealand Free Market Center (FMC), Yugoslavia 8 Institute of Public Policy Analysis, Nigeria Zambia Institute for Public Policy Analysis Civita – Center for Business and Society (ZIPPA), Zambia

Sample of Press Coverage for Fraser Institute’ Economic Freedom of the World 2005 All Africa, Africa Asia Pulse, Australian Financial Review, Australia Scoop, Australia Latin America News Digest, Brazil Capital Weekly, Bulgaria El Diario de Hoy, Central America Diario Financiero, Chile El Financiero, Chile Xinhua News Agency, China South China Morning Post, China Daily-Hong Kong Edition, China Ambiito Juridico, Colombia Portafolio, Colombia La Prensa Libre, Costa Rica El Financiero, Costa Rica Hina, Croatia Hospodarske Noviny, Czech Republic Borsen, Denmark Jyllands-Posten, Denmark Baltic Business Weekly, Estonia BBC Monitoring, Europe Radio Liberty, Georgia Frankfurter Allgemeine, Germany Vereinigte, Germany Financial Express, India Hindustan Times, India Journal of Commerce, International El Cronista Comercial, International El Nacional, International Herald Tribune, International Israel Business Arena, Israel Jerusalem Post, Israel Italia. Oggi, Italy Il Sole, Italy Il Giornale, Italy Korea Times, Korea Seoul Daily, Korea Herald, Korea Noticias Latinoamericanas, Mexico Agencia Mexicanan De Noticias, Mexico Republika, Montenegro Financial Times Deutschland, Netherlands Times of Oman, Oman Daily times, Pakistan Rzeczpospolita, Poland La Tribune, Canada Montreal Gazette, Canada Rumanian, Romania St. Petersburg Times, Russia Moscow Times, Russia Interfax, Russian Publication, Russia Plenipotentiary, Russia Republika, Serbia/Montenegro Vijesti, Serbia/Montenegro Pobjeda, Serbia/Montenegro Straits Times, Singapore Ekonomicka Sloboda, Slovakia Hodin Daily, Slovakia Pravda Daily, Slovakia Business Day, South Africa El Economista, Spain Libertad Digital, Spain L'Agefl Suisse, Switzerland Bangkok Post, Thailand Trinidad Guardian, Trinidad & Tobago Financial Times, UK Investor's Business Daily, US 9 Financial Times, US

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Introducing the 2006 Economic Freedom of the World Index Results 11

Overall Economic Freedom Index and the Top 10 Source: The Fraser Institute. 12

The top 10 and how they got there Source: The Fraser Institute. 13

Countries having significant improvement since 1970 Source: The Fraser Institute. 14

Countries having significant deterioration since 1970 Source: The Fraser Institute. 15

Overall Economic Freedom Index and the Bottom Ten Source: The Fraser Institute. 16

Economic Freedom Over Time Source: The Fraser Institute. 17

Economic Freedom Over Time Adjusted for Population Source: The Fraser Institute. 18

Economic Freedom and the Top 10 19

Size of Government and the Top 10 Source: The Fraser Institute. 20

Size of Government and the Top 10 Source: The Fraser Institute. 21

Size of Government and the Top 10 Source: The Fraser Institute. 22

Legal System and Property Rights and the Top 10 Source: The Fraser Institute. 23

Legal System and Property Rights and the Top 10 Source: The Fraser Institute. 24

Legal System and Property Rights and the Top 10 Source: The Fraser Institute. 25

Sound Money and the Top 10 Source: The Fraser Institute. 26

Sound Money and the Top 10 Source: The Fraser Institute. 27

Sound Money and the Top 10 Source: The Fraser Institute. 28

Freedom to Trade Internationally and the Top 10 Source: The Fraser Institute. 29

Freedom to Trade Internationally and the Top 10 Source: The Fraser Institute. 30

Freedom to Trade Internationally and the Top 10 Source: The Fraser Institute. 31

Regulations and the Top 10 Source: The Fraser Institute. 32

Regulations and the Top 10 Source: The Fraser Institute. 33

Regulations and the Top 10 Source: The Fraser Institute. 34

Credit Market Regulations and the Top 10 Source: The Fraser Institute. 35

Credit Market Regulations and the Top 10 Source: The Fraser Institute. 36

Credit Market Regulations and the Top 10 Source: The Fraser Institute. 37

Labor Market Regulations and the Top 10 Source: The Fraser Institute. 38

Labor Market Regulations and the Top 10 Source: The Fraser Institute. 39

Labor Market Regulations and the Top 10 Source: The Fraser Institute. 40

Business Regulations and the Top 10 Source: The Fraser Institute. 41

Why is Economic Freedom Important? l Economic rights are fundamental rights in the sense that without them there can be no political freedom or civil freedoms l They are a prerequisite for growth and development l They are a prerequisite for broader human development 42

The impact on economic growth and development 43

Income (per person) of the Bottom Ten Sources: The Fraser Institute; The World Bank, World Development Indicators CD-ROM, 2006. 44

Income (per person) of the Top 10 Sources: The Fraser Institute; The World Bank, World Development Indicators 45 CD-ROM, 2006.

Per Capita Income and Economic Freedom Quartile Least Free …………… Most Free Sources: The Fraser Institute; The World Bank, World Development Indicators CD-ROM, 2005. 46

Growth in Real GDP Per Capita and Economic Freedom Quartile Least Free ……………. . Most Free Sources: The Fraser Institute; The World Bank, World Development Indicators 47 CD-ROM, 2005.

Economic Freedom and Unemployment Least Free ……………. . Most Free Sources: The Fraser Institute; The World Bank, World Development Indicators CD-ROM, 2005. 48

New research: Economic Freedom and Foreign Aid 49

Economic Freedom and Foreign Aid: Ø Millennium Development Goals Ø Halving poverty by 2015 Ø Lack of empirical evidence on the effectiveness of aid 50

Economic Freedom and Foreign Aid: Background: Ø As of 2000, approximately 75% of world’s poor live in Africa Ø In 1970, less than 15 percent of world’s poor lived in the region Ø From 1970 to 2000, Africa received $400 billions in foreign aid Ø Aid has growth continuously from 5% of GNI to 18% in 51 1995 when it peaked.

Economic Freedom and Foreign Aid: New Research by professor William Easterly: Ø Foreign aid has no positive impact on economic growth in poor nations Ø This indicates that the “push” from foreign aid is ineffective in breaking the poverty trap Ø Easterly shows that once economic freedom is controlled for, poor nations grow faster than rich nations 52

Policy Implications: l Efforts to reduce poverty may not produce the results l Policy should be to promote economic freedom l Economic freedom has been shown to promote economic prosperity (and many other good outcomes) 53

Economic Freedom, the Poor, and Inequality 54

Human Poverty Index and Economic Freedom Quartile Least Free …………. . …. Most Free Sources: The Fraser Institute; United Nations Development Programmme, Human Development Indicators 2005, available at http: //hdr. undp. org/statistics/data/index_indicators. cfm. 55

Income Share of the Poorest 10% and Economic Freedom Least Free ……. . Most Free Sources: The Fraser Institute; The World Bank, World Development Indicators CDROM, 2005. 56

Per Capita Income of Poorest 10% and Economic Freedom Least Free ……. . Most Free Sources: The Fraser Institute; The World Bank, World Development Indicators 57 CD-ROM, 2005.

Economic Freedom, Other Freedoms and Democracy 58

Economic Freedom Versus Corruption Higher value indicates lower level of corruption Least Free …………. . Most Free Sources: The Fraser Institute; Transparency International, Corruption Perceptions Index 2005, available at http: //www. transparency. org. 59

Economic Freedom and Political Rights Lower ratings indicate higher level of political rights Least Free ……………. Most Free Sources: The Fraser Institute; Freedom House, Freedom in the World Country Ratings, 1972 through 2004, available at http: //www. freedomhouse. org/. 60

Economic Freedom and Civil Liberties Lower ratings indicate higher level of civil liberties Least Free ……. . Most Free Sources: The Fraser Institute; Freedom House, Freedom in the World Country Ratings, 1972 through 2004, available at http: //www. freedomhouse. org/. 61

The impact of Economic Freedom on the UN’s Human Development Index and other indicators of well-being 62

Human Development Index and Economic Freedom Quartiles Least Free ……………. Most Free Sources: The Fraser Institute; United Nations Development Programmme, Human Development Indicators 2005, available at http: //hdr. undp. org/. 63

Life Expectancy at Birth and Economic Freedom Quartiles Least Free ……………. Most Free Sources: The Fraser Institute; The World Bank, World Development Indicators CDROM, 2005. 64

Infant Mortality and Economic Freedom Quartile Least Free ………. . …. Most Free Sources: The Fraser Institute; The World Bank, World Development Indicators CD-ROM, 2005. 65

Economic Freedom and Labor force, children 10 -14 (% of age group) Least Free ……………. Most Free Sources: The Fraser Institute; The World Bank, World Development Indicators CD-ROM, 2005. 66

% of Population Using Improved Water Sources Least Free ……………. . Most Free Sources: The Fraser Institute; The World Bank, World Development Indicators CD 67 -ROM, 2005.

Economic Freedom and Happiness Causes of Happiness, 68 nation study Variables included: ØIncome ØEconomic Growth ØInflation ØUnemployment ØEducation ØPolitical freedom Only two variables had large effects: ØEconomic Freedom ØLife Expectancy 68

Economic Freedom and Happiness 69

Conclusions Economic Freedom l Increases prosperity for all l Reduces poverty l Increases other freedoms l Improves quality of life All this can be seen in today’s data and lessons from history 70

www. freetheworld. com www. fraserinstitute. ca 71