Index of Economic Freedom

Map of Economic Freedom released by the Heritage Foundation. According to the research, the wealthiest nations are those with a high Index of Economic Freedom.

The Indexes of Economic Freedom are several similar indexes released annually. One is published by The Wall Street Journal and the conservative think-tank Heritage Foundation. A different index is published by the Fraser Institute.

1 Methodology
2 Current ratings
- 2.1 Developments
3 Similar Indices
4 Research
5 Criticism
6 External links
7 See also

Methodology

The Heritage index measures how countries score on a list of 50 independent variables. They include:

Corruption in the judiciary, customs service, and government bureaucracy;
Non-tariff barriers to trade, such as import bans and quotas as well as strict labeling and licensing requirements;
The fiscal burden of government, which encompasses income tax rates, corporate tax rates, and trends in government expenditures as a percent of output;
The rule of law, efficiency within the judiciary, and the ability to enforce contracts;
Regulatory burdens on business, including health, safety, and environmental regulation;
Restrictions on banks regarding financial services, such as selling securities and insurance;
Labor market regulations, such as established work weeks and mandatory separation pay; and
Informal market activities, including corruption, smuggling, piracy of intellectual property rights, and the underground provision of labor and other services.

These are divided into 10 broad factors of economic freedom:

Trade policy,
Fiscal burden of government,
Government intervention in the economy,
Monetary policy,
Capital flows and foreign investment,
Banking and finance,
Wages and prices,
Property rights,
Regulation, and
Informal market activity

The higher a country's score on a factor the less economic freedom there is. The 10 factors are given equal weight in determining the final score. Depending on their score, countries are then separated into four categories: Free, Mostly Free, Mostly Unfree, and Repressed.

Current ratings

The most current ratings are for 2006. Note: countries sharing the same rank received a tie score. For example, Iceland and the United Kingdom are tied for the rank of 5th most economically free country. Also note that a detailed description of the conditions in each country can be found on: http://www.heritage.org/research/features/index/countries.cfm.

Yearly worldwide index of economic freedom
published by The Wall Street Journal and The Heritage Foundation

Rank	Country	Index
2006	Country	2006	2005	2004	2003
1	Hong Kong	1.28	1.35	1.34	1.44
2	Singapore	1.56	1.60	1.61	1.61
3	Ireland	1.58	1.70	1.79	1.73
4	Luxembourg	1.60	1.63	1.76	1.68
5	Iceland	1.74	1.81	2.05	1.98
5	United Kingdom	1.74	1.75	1.84	1.88
7	Estonia	1.75	1.65	1.76	1.68
8	Denmark	1.78	1.76	1.85	1.71
9	New Zealand	1.84	1.75	1.70	1.68
9	United States	1.84	1.90	1.85	1.86
9	Australia	1.84	1.84	1.93	1.95
12	Canada	1.85	1.91	1.98	2.00
12	Finland	1.85	1.90	2.00	1.85
14	Chile	1.88	1.86	1.91	2.06
15	Switzerland	1.89	1.85	1.84	1.88
16	Netherlands	1.90	1.95	2.09	2.00
16	Cyprus	1.90	2.13	2.00	2.14
18	Austria	1.95	2.09	2.13	2.08
19	Germany	1.96	2.00	2.08	2.03
19	Sweden	1.96	1.89	1.95	1.88
21	Czech Republic	2.10	2.31	2.39	2.35
22	Belgium	2.11	2.13	2.24	2.10
23	Lithuania	2.14	2.18	2.19	2.21
24	Malta	2.16	2.28	2.46	2.71
25	Bahrain	2.23	2.15	2.13	2.09
26	Barbados	2.25	2.35	2.41	2.24
27	Bahamas	2.26	2.25	2.25	2.15
27	Japan	2.26	2.46	2.53	2.36
27	Armenia	2.26	2.58	2.63	2.59
30	Norway	2.29	2.33	2.35	2.28
30	Botswana	2.29	2.49	2.55	2.54
30	Portugal	2.29	2.44	2.43	2.40
33	Spain	2.33	2.34	2.36	2.31
34	Slovakia	2.35	2.43	2.44	2.71
36	Israel	2.36	2.41	2.41	2.45
37	Republic of China (Taiwan)	2.38	2.34	2.48	2.34
38	El Salvador	2.41	2.64	2.70	2.86
39	Latvia	2.43	2.31	2.41	2.35
40	Hungary	2.44	2.40	2.55	2.50
41	Poland	2.49	2.59	2.81	2.83
42	Trinidad and Tobago	2.50	2.54	2.40	2.54
42	Italy	2.50	2.28	2.31	2.31
44	France	2.51	2.63	2.68	2.74
45	Republic of Korea	2.63	2.64	2.64	2.75
46	Uruguay	2.69	2.60	2.55	2.50
46	Costa Rica	2.69	2.76	2.66	2.76
46	Cape Verde	2.69	2.84	2.86	3.30
49	Panama	2.70	2.74	2.83	2.64
50	Kuwait	2.74	2.81	2.75	2.58
50	South Africa	2.74	2.83	2.79	2.63
52	Albania	2.75	2.93	3.10	3.23
52	Madagascar	2.75	2.73	3.14	2.85
54	Jamaica	2.76	2.76	2.81	2.68
55	Belize	2.78	2.71	2.69	2.69
55	Croatia	2.78	2.95	3.06	3.06
57	Greece	2.80	2.80	2.85	2.79
57	Macedonia	2.80	3.00	3.09	3.18
57	Jordan	2.80	2.79	2.78	2.80
60	Mongolia	2.83	2.75	2.85	2.96
60	Mexico	2.83	2.84	2.90	2.81
62	Saudi Arabia	2.84	2.99	3.05	3.09
63	Peru	2.86	2.83	2.88	2.91
64	Bulgaria	2.88	2.74	2.98	3.26
65	United Arab Emirates	2.93	2.73	2.65	2.25
66	Uganda	2.95	3.00	2.70	2.95
67	Bolivia	2.96	2.75	2.64	2.54
68	Cambodia	2.98	2.89	2.90	2.73
68	Malaysia	2.98	2.91	3.16	3.14
68	Georgia	2.98	3.29	3.14	3.40
71	Kyrgyzstan	2.99	3.34	3.41	3.46
71	Thailand	2.99	3.03	2.81	2.71
73	Lebanon	3.00	3.10	3.13	3.04
74	Oman	3.01	2.81	2.75	2.70
74	Bosnia and Herzegovina	3.01	3.16	3.30	3.54
74	Guatemala	3.01	3.18	3.16	3.01
77	Mauritius	3.03	2.90	2.99	2.96
78	Swaziland	3.04	3.11	3.18	3.05
78	Qatar	3.04	3.05	2.81	2.78

Rank	Country	Index
2006	Country	2006	2005	2004	2003
80	Nicaragua	3.05	2.90	2.99	3.14
81	Mauritania	3.08	2.98	2.99	3.15
81	Brazil	3.08	3.20	3.10	3.06
83	Senegal	3.10	3.04	3.05	3.33
83	Maldives	3.10	3.11	3.09	3.13
85	Turkey	3.11	3.41	3.39	3.50
85	Guyana	3.11	3.08	3.08	3.15
85	Namibia	3.11	3.15	2.96	2.70
88	Mali	3.14	3.18	3.29	3.20
88	Côte d'Ivoire	3.14	3.26	3.13	3.16
90	Fiji	3.15	3.28	3.06	3.48
91	Colombia	3.16	3.21	3.13	3.10
92	Sri Lanka	3.19	3.03	3.06	3.05
92	Romania	3.19	3.58	3.71	3.71
94	Tanzania	3.20	3.41	3.24	3.49
94	Djibouti	3.20	3.30	3.23	3.30
94	Kenya	3.20	3.23	3.26	3.21
97	Morocco	3.21	3.18	2.93	2.96
98	Philippines	3.23	3.30	3.10	3.00
99	Lesotho	3.24	3.41	3.50	3.29
99	Tunisia	3.24	3.14	2.94	2.91
99	Ukraine	3.24	3.16	3.49	3.59
102	Honduras	3.28	3.43	3.53	3.24
102	Burkina Faso	3.28	3.28	3.28	3.35
102	Gabon	3.28	3.40	3.43	3.18
105	Ghana	3.29	3.25	3.35	3.54
105	Chad	3.29	3.33	3.54	3.59
107	Ecuador	3.30	3.49	3.60	3.58
107	Argentina	3.30	3.49	3.43	3.09
109	Paraguay	3.31	3.45	3.44	3.40
110	Pakistan	3.33	3.73	3.35	3.44
111	Zambia	3.34	3.45	3.55	3.55
111	People's Republic of China (Mainland only)	3.34	3.51	3.59	3.49
113	Kazakhstan	3.35	3.61	3.65	3.50
113	Mozambique	3.35	3.29	3.33	3.40
115	Niger	3.38	3.48	3.48	3.61
116	Dominican Republic	3.39	3.54	3.51	3.29
117	Benin	3.40	3.63	3.49	3.56
118	Central African Republic	3.41	3.51	3.38	3.28
119	Cameroon	3.46	3.60	3.63	3.54
119	Algeria	3.46	3.49	3.26	3.39
121	India	3.49	3.53	3.53	3.58
122	Russia	3.50	3.61	3.51	3.54
123	Azerbaijan	3.51	3.43	3.44	3.50
123	Gambia	3.51	3.45	3.49	3.44
125	Rwanda	3.53	3.54	3.41	3.93
125	Nepal	3.53	3.55	3.53	3.63
127	Guinea	3.55	3.33	3.24	3.26
128	Egypt	3.59	3.43	3.33	3.44
129	Suriname	3.60	3.93	3.96	4.01
130	Malawi	3.63	3.65	3.51	3.63
131	Guinea-Bissau	3.65	3.80	3.85	3.90
132	Burundi	3.69
133	Ethiopia	3.70	3.73	3.33	3.79
134	Indonesia	3.71	3.59	3.76	3.43
134	Togo	3.71	3.68	3.78	3.86
136	Equatorial Guinea	3.74	3.58	3.69	3.73
137	Sierra Leone	3.76	3.78	3.73	3.95
137	Tajikistan	3.76	4.05	4.20	4.15
139	Yemen	3.84	3.75	3.70	3.73
139	Angola	3.84
141	Bangladesh	3.88	3.95	3.70	3.69
142	Vietnam	3.89	3.83	3.93	3.90
143	Republic of the Congo	3.90	3.80	3.90	3.80
144	Uzbekistan	3.91	4.05	4.29	4.29
145	Syria	3.93	3.90	3.88	3.88
146	Nigeria	4.00	3.95	3.90	3.99
147	Haiti	4.03	4.09	3.73	3.86
148	Turkmenistan	4.04	4.36	4.31	4.21
149	Laos	4.08	4.33	4.40	4.68
150	Cuba	4.10	4.24	4.13	4.47
151	Belarus	4.11	4.04	4.04	4.19
152	Venezuela	4.16	4.09	4.23	3.76
152	Libya	4.16	4.40	4.55	4.47
154	Zimbabwe	4.23	4.36	4.54	4.63
155	Burkina Faso	4.46	4.60	4.40	4.35
156	Iran	4.51	4.21	4.31	4.30
157	Democratic People's Republic of Korea	5.00	5.00	5.00	5.00

Note: Due to economic or political instability, the Democratic Republic of the Congo, Iraq, Papua New Guinea, Samoa, Serbia and Montenegro, Somalia and Sudan were not ranked. There is also no data for countries with very small populations including Andorra, Antigua and Barbuda, Bhutan, Dominica, East Timor, Grenada, Liechtenstein, Micronesia, Monaco, San Marino, Saint Lucia, São Tomé and Príncipe, Saint Vincent and the Grenadines, Saint Kitts and Nevis, Vatican City, Tonga, Tuvalu, and Seychelles.

Developments

Overall, 99 countries worldwide are freer than they were last year and 51 are less free. Five countries remained in the same degree of freedom.
The 10 most-improved countries this year were: Pakistan, Romania, Kyrgyzstan, Suriname, Armenia, Turkmenistan, Georgia, Turkey, Tajikistan and Kazakhstan.
The 10 worst-improved countries this year were: Iran, Italy, Guinea, Bolivia, United Arab Emirates, Oman, Sri Lanka, Equatorial Guinea, Egypt and Nicaragua.

Similar Indices

the Fraser Institute: the "Economic Freedom of the World Annual Report"; and
the World Economic Forum: the "Global Competitiveness Report."

Research

Economic Freedom, as defined by the Heritage Foundation, is statistically correlated with a higher GDP/Capita.

Many peer-reviewed articles have used these indices. [1] [2] One question has been what subcomponents are responsible for economic growth. Strong property rights and low inflation may be particularly important. Regarding the size of government and free trade there is much conflicting evidence.

More economic freedom correlates strongly with higher average income per person, higher income of the poorest 10%, higher life-expectancy, higher literacy, lower infant mortality, higher access to water sources and less corruption. The share of income in percent going to the poorest 10% is the same for both more and less economically free countries. [3].

An overview of research can be found here [4], including studies showing that more economic freedom is the cause of beneficial effects.

Criticism

Some economists and commentators have criticized the Index on several grounds—asking, for instance, if Canada's slightly higher income tax rates make it a less economically free country than the United States. Critics of the index's methodology most commonly take issue with its equation of regressive taxation, low tax rates generally, and weak worker protection regulations with economic freedom. Some critics go further, saying that the index judges countries against a specious list of 'ideal' economic and fiscal policies, which reflect the Heritage Foundation and Wall Street Journal 's own laissez-faire economic and fiscal policy ideas more than they do a substantive concept of economic freedom. For such critics, the list is simply a promotional tool for laissez-faire policy, rather than a meaningful index of economically free countries.

In response, proponents point out that the indexes and their subcomponents have been used in much research, independent of the creators of the indices, published in numerous peer-reviewed papers. Such peer-review includes the methodology used in creating the indices. That the creators of the indexes support laissez-faire capitalism does not invalidate the empirical research.

Also, this independent research does not necessarily support the ideals of laissez-faire. For example, when examining the effects of subcomponents of the index, any positive effect that a low level of taxes might have is much more disputed than the importance of rule of law, lack of corruption and functioning property rights. Some of the highest ranking countries in the index, for example Iceland (# 5), Denmark (# 8) and Sweden (# 19) are widely recognized as having some of the world's most extensive welfare states, which are strongly opposed by advocates of laissez-faire.