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Index of Economic Freedom reports worldwide advances

Economic freedom expanded during the past year, The Heritage Foundation and The Wall Street Journal reported recently in their annual “Index of Economic Freedom,” with more countries easing economic restrictions than imposing them.

The survey shows 73 of the 156 countries rated granted their citizens more economic liberty, while 53 imposed new restrictions. Economic freedom has increased every year since the Index was first published in 1995.

Most of the world’s economies, however, remain relatively “unfree.” Overall, 71 economies were rated as “free” or “mostly free,” while 85 earned ratings of “mostly unfree” or “repressed.” North America and Europe remain home to a majority of the freest economies, while most of the world’s repressed economies are in Asia and Africa.

The editors again stress the relationship between economic freedom and per capita income. World Bank data show that per capita income for “mostly unfree” or “repressed” economies averaged about $3,500 in 1999 – a figure that jumps to $11,549 for “mostly free” economies and then doubles to $23,325 for “free” economies.

“Once again, we found that economic freedom and prosperity go hand in hand,” note Index editors Gerald P. O’Driscoll Jr., director of Heritage’s Center for International Trade and Economics: Kim R. Holmes, a Heritage vice president and director of the think tank’s Davis Institute for International Studies; and Mary Anastasia 0’ Grady, editor of The Wall Street Journal’s “Americas” column. “The pattern is the same worldwide: More economic freedom means a higher standard of living.”

The black-market scores for 34 nations are worse this year, but this can be at least partially traced to the fact that the editors are now using data from Transparency International, a German-based non-governmental organization, to measure the underground economy even more precisely than in past editions of the Index.

The 2002 Index, published by The Heritage Foundation and The Wall Street Journal editorial page, shows that scores for four region – North America and Europe, Asia-Pacific, North Africa and the Middle East, and Sub-Saharan Africa – improved.

The remaining region, Latin America and the Caribbean, posted no overall gain or loss in economic freedom.

Hong Kong retained its No. 1 ranking, though its score declined slightly because its black-market score is worse. Singapore – one of the most politically stable countries in Asia, the editors say – held on to the No. 2 spot. New Zealand’s score remained the same, but it took over the No. 3 spot claimed in the 2001 Index by Ireland, which – because of black-market activity and rising inflation – slipped into a 4th-place tie with four other countries.

Others sharing the No. 4 slot are Luxembourg, Netherlands, the United States and Estonia – the first former Soviet state to break into the Index’s top 10. Chile moved into the top 10 for the first time as well—the first Latin American country to do so.

Four countries in the bottom 10 saw their scores improve; the rest declined or stayed the same.

The Most Free
Hong Kong (1st)
Singapore (2nd)
New Zealand (3rd)
Estonia (4th)
Ireland (4th)
Luxembourg (4th)
Netherlands (4th)
United States (4th)
Australia (9th) Chile (9th)
United Kingdom (9th)

The Least Free
North Korea (155th)
Iraq (155th)
Libya (153rd)
Cuba (153rd)
Laos (151st)
Iran (151st)
Turkmenistan (150th)
Uzbekistan (148th)
Belarus (148th)
Zimbabwe (147th)

Several factors played a role in the gains and losses seen worldwide, the editors note. Declining inflation rates, for one, helped many nations improve their “monetary policy” scores. Plus, the amount of control governments exert over the banking systems in their countries remained relatively stable, with only two countries – Botswana and Zimbabwe – seeing their scores decline in this area.

But the editors also note certain trends among the reversals. The “fiscal burden of government,” from taxation to government spending, became worse in more than two dozen countries, versus 18 that saw their burden lighten.

And property rights again came under attack, with 22 countries allowing them to erode and only two strengthening them.

The new availability of uniform data allowed the editors to add three countries to this year’s report – Central African Republic, Macedonia and Yugoslavia. However, “the continued unavailability of relevant data” forced them to drop three others – Papua New Guinea, Samoa and Somalia. A lack of reliable data again prevented the editors from grading Afghanistan’s economy.

The 2002 Index of Economic Freedom is the eighth edition of the popular survey. The full text, including all charts and graphs, will be available online at www.heritage.org/index. A Spanish-language edition is also being published.