According to free-market economists, economic freedom is the key to prosperity and growth.

Author: Tiziana Barghini
Project Coordinator: S.J. Yun

The Index of Economic Freedom is published annually by The Wall Street Journal and The Heritage Foundation, a conservative-leaning think tank in Washington DC, and it looks at 10 different categories – ranging from property rights protection to government control of the economy – and ranks 186 countries, or 99 percent of the world’s population, in one of the best-known index of business conditions around the world.

Launched twenty years ago, the Heritage Foundation Index might appear somehow out of fashion. It ignores relevant aspects of economic development such as income distribution, education and social wellbeing. Some critics say that the index shows correlation and not causation. Some of them also point to the strong growth of the Chinese economy as proof that strong economic growth is possible also when there is little economic freedom.

The goal of the index is the straight measurement of economic freedom considered as a fundamental premise for any country’s ability to expand its economy and obtains better standard of living.  The authors point out that countries with higher levels of economic freedom do better that others not only in economic expansion and per-capita incomes, but also in health care, education, protection of the environment, reduction of poverty and overall well-being.

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The Role Of Economic Freedom

The 10 indicators are grouped in four broad categories:

  1. Rule of Law (property rights, freedom from corruption),
  2. Limited Government (fiscal freedom, government spending),
  3. Regulatory Efficiency (business freedom,
  4. labor freedom, monetary freedom), and
  5. Open Markets (trade freedom, investment freedom, financial freedom).

They are assigned a grade (0 indicating the least freedom and 100 the maximum) and averaged to give an overall score.

For 2015, Hong Kong still tops the list of the 186 countries as it was the year before, while North Korea remains at the bottom.

After five years of decline, the economic freedom as registered by the index, returned to grow in the last 12 months. The global index reached its record high in 2014 at an average of 60.3, or 0.7 point above 2013 and 2.7 point improvement from 1995. A total of 114 countries showed an increased in the index.

Progress remains unsatisfactory for large part of the world population, with 4.5 billion of people still leaving on economically “unfree” countries. China and India have so far shown advancement considered “patchy”. China in particular ranks very low for the protection, or better said lack of protection, of property rights.

The United States, whose index passed to 75.5 in 2014 from 81 in 2007, showed the seventh straight decline in a row.  The country fell to the 12th place in the world’s ranking in a spot considered “mostly free”. Its most notable declines were in fiscal freedom, business freedom and property rights.

In term of large world regions, the Asia-Pacific area showed the greatest gains, led by Burma, Malaysia and Samoa. For 2015 the countries that showed the largest gains were in the order Colombia, Poland, United Arab Emirates and Indonesia. Some European Countries have seen improvements, while most of the Mediterranean ones, such as Italy, Spain and Greece declined. North America and the Middle East and North Africa also declined.

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