1 economic freedom of the world: 2002 annual report n presentation to n fraser institute press...
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Economic Freedom of the World: 2002 Annual Report
Presentation to Fraser Institute Press
Conference Calgary June 24, 2002 Fred McMahon and
Michael Walker The Fraser Institute
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THANK YOU FOR COMING!
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
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
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Economic Freedom of the World Project Objective: find a way to measure economic
freedom and explore the connection between it and other variables
17 year project Led by Professor Milton Friedman, Rose
Friedman and Michael Walker Involved 60 of the world’s top economists
and political scientists
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What is The Economic Freedom of the World Index? An annual compilation of data representing factors
which make a country economically free Authors: James Gwartney and Robert Lawson A compendium of 36 government policies affecting
economic freedom based on objective data or independent surveys
A ranking of 123 countries representing 91% of the world’s population according to the extent to which they permit their citizens to be economically free
Now a collaboration of 55 Institutes in 55 different countries
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Introducing the 2002 Economic Freedom of the World Index Results
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The top ten and how they got there
1
11
21
31
1970 1975 1980 1985 1990 1995 2000
Rank
Australia
Canada
Hong Kong
Ireland
Netherlands
New Zealand
Singapore
Switzerland
United Kingdom
United States
7
Countries with significant deterioration since 1970
1
21
41
61
81
101
121
1970 1975 1980 1985 1990 1995 2000
Rank
Colombia
Ecuador
Nigeria
Guatemala
Pakistan
Syria
Venezuela
Madagascar
Congo, Dem. R.
Iran
8
Economic Freedom in Africa
0
2
4
6
8
10
1970 1975 1980 1985 1990 1995 2000
Algeria
Benin
Botswana
Burundi
Cameroon
CenAfRep
Chad
Congo DR
Congo R
Cote d'IV
Gabon
Ghana
Guinea-Bi
Kenya
Madagascar
Top Ten Average
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More African Countries
0
2
4
6
8
10
1970 1975 1980 1985 1990 1995 2000
Malawi
Mali
Mauritius
Namibia
Niger
Nigeria
Rwanda
Senegal
Sierre Le
South Afr
Tanzania
Togo
Uganda
Zambia
Zimbabwe
Top TenAverage
10
Economic Freedom on the march.
Economic Freedom of the WorldAverage Rating, 1980-2000
(Based on Chapter 1, Exhibit 4)
5.1 5.2 5.3 5.66.2
6.6
4.0
5.0
6.0
7.0
1975 1980 1985 1990 1995 2000
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Why is Economic Freedom Important? Economic rights are fundamental rights in
the sense that without them there can be no political freedom or civil freedoms
They are a prerequisite for growth and development
They are a prerequisite for broader human development
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The impact on economic growth and development
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Income (per person) of the Bottom Ten
0 5,000 10,000 15,000 20,000 25,000 30,000 35,000
Congo, Rep. Of
Malawi
Congo, Dem. R.
Guinea-Bissau
Togo
Zimbabwe
Ukraine
Algeria
Romania
Russia
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Per Capita Income and Economic Freedom Quintile
$0
$5,000
$10,000
$15,000
$20,000
$25,000
Gro
ss N
atio
nal
Inco
me
Per
Cap
ita,
ppp
US
$, 2
000
Bottom 20% 2nd Quintile 3rd Quintile 4th Quintile Top 20%
Least Free …….. Most FreeLeast Free …….. Most Free
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Growth in Real GDP Per Capita and Economic Freedom Quintile
-1
-0.5
0
0.5
1
1.5
2
2.5
3
GD
P P
er C
apita
% G
row
th,
1990
-200
0
Bottom 20% 2nd Quintile 3rd Quintile 4th Quintile Top 20%
Least Free ……………..….. Most FreeLeast Free ……………..….. Most Free
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Per Capita Income of poorest 10% and Economic Freedom
728 1282 1391
4108
7017
$0$1,000$2,000$3,000$4,000$5,000$6,000$7,000$8,000
Inco
me
Per
Cap
ita,
lo
wes
t 10
%
pp
p U
S$,
200
0
Bottom20%
2ndQuintile
3rd Quintile 4th Quintile Top 20%
Least Free …….. Most FreeLeast Free …….. Most Free
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The impact on human development The United Nations Development Index
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Economic Freedom and Human Development
R2 = 0.4454
0
0.2
0.4
0.6
0.8
1
0 2 4 6 8 10
Economic Freedom Rating
Unite
d Na
tions
Hum
an
Deve
lopm
ent I
ndex
, 199
9
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Life Expectancy at Birth, 1999, and Economic Freedom Quintiles
30
40
50
60
70
80
Year
s
Bottom 20% 2nd Quintile 3rd Quintile 4th Quintile Top 20%
Least Free ……………. Most FreeLeast Free ……………. Most Free
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1999,Adult Illiteracy rate, (% of population age 15 and above) by Economic Freedom Quintile
0
5
10
15
20
25
30
35
Bottom 20% 2nd Quintile 3rd Quintile 4th Quintile Top 20%
Least Free ……….... Most FreeLeast Free ……….... Most Free
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Human Poverty Index and Economic Freedom Quintile
0
5
10
15
20
25
30
35
40
Bottom 20% 2nd Quintile 3rd Quintile 4th Quintile Top 20%
Least Free …………..…. Most FreeLeast Free …………..…. Most Free
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Infant Mortality and Economic Freedom Quintile
0
10
20
30
40
50
60
70
80
Per
1,0
00 li
ve b
irths
, 199
9
Bottom 20% 2nd Quintile 3rd Quintile 4th Quintile Top 20%
Least Free ………..…. Most FreeLeast Free ………..…. Most Free
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Child Malnutrition and Economic Freedom Quintile
0
5
10
15
20
25
Ch
ilder
Un
der
Wei
gh
t fo
r A
ge
(%
un
der
ag
e 5)
, 199
5-20
00
Bottom 20% 2nd Quintile 3rd Quinitle 4th Quinitle Top 20%
Least Free ……………..Most Free Least Free ……………..Most Free
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Economic Freedom and Child Labor (proportion of children 5-14 years of age working, 2000)
0
10
20
30
40
50
60
70
Bottom20%
2ndQuintile
3rdQuintile
4thQuintile
Top 20%
Least Free ……………. Most FreeLeast Free ……………. Most Free
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Access to Essential Drugs, 1999, and Economic Freedom Quintiles
0
20
40
60
80
100
% o
f p
op
ula
tion
with
acc
ess
Bottom 20% 2nd Quintile 3rd Quintile 4th Quintile Top 20%
Least Free …………..Most FreeLeast Free …………..Most Free
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% of Population Using Improved Water Sources, 1999
0
20
40
60
80
100
Bottom 20% 2nd Quintile 3rd Quintile 4th Quintile Top 20%
Least Free …………….. Most FreeLeast Free …………….. Most Free
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Economic Freedom Versus Corruption
0
1
2
3
4
5
6
7
8
Bottom 20% 2nd Quitile 3rd Quitile 4th Quintile Top 20%
Least Free ………….. Most FreeLeast Free ………….. Most Free
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Political Stability and Economic Freedom Quintile
0
2
4
6
8
10
Bottom 20% 2nd Quintile 3rd Quintile 4th Quintile Top 20%
Least Free ………..… Most FreeLeast Free ………..… Most Free
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Political Rights & Civil Liberties
0
1
2
3
4
5
6
Bottom20%
2ndQuintile
3rdQuintile
4thQuintile
Top 20%
political freedom,2000civilfreedom,2000
Least Free …… Most FreeLeast Free …… Most Free
30
Focus on Mauritius
0
1
2
3
4
5
6
1975 1980 1985 1990 1995 2000
2
3
4
5
6
7
8
Growth
Freedom
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Focus on Botswana
0
500
1000
1500
2000
2500
3000
3500
4000
1975 1980 1985 1990 1995 2000
0
1
2
3
4
5
6
7
8
Income Per Capita
Economic Freedom
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In Africa, Botswana and South Africa score the best.
Countries
1. Size of Government,
2000
2. Legal System & Property Rights, 2000
3. Sound Money, 2000
4. Freedom to Trade with foreigners,
2000
5. Regulation,
2000
SUMMARY INDEX, 2000
Botswana 5.3 7.1 8.6 7.7 6.5 7.0South Africa 5.4 6.5 7.5 7.3 7.0 6.8
Average 5.4 6.8 8.0 7.5 6.7 6.9
Namibia 3.9 8.3 7.1 6.9 6.6 6.6Kenya 6.6 4.1 8.9 7.1 6.2 6.6Uganda 6.2 4.7 9.2 6.8 5.6 6.5Zambia 6.6 6.5 5.9 8.1 5.6 6.5Tanzania 5.5 6.5 8.4 5.6 3.7 6.0Cote d'Ivoire 7.7 3.5 6.8 6.2 5.4 5.9Benin 6.5 6.5 5.3 5.1 5.8Ghana 6.8 4.1 5.2 6.5 5.9 5.7Senegal 6.7 4.1 7.0 6.0 4.6 5.7Burundi 6.5 6.0 4.5 5.5 5.6Chad 6.5 6.3 5.8 3.9 5.6Mali 5.7 5.3 6.6 5.9 4.6 5.6Niger 5.9 4.7 6.7 5.4 4.6 5.5Cameroon 5.5 4.7 6.4 5.8 5.0 5.5Nigeria 5.5 3.6 5.5 5.8 6.1 5.3Rwanda 5.5 5.8 4.6 5.2 5.3Madagascar 6.5 4.7 4.5 6.0 4.4 5.2Gabon 3.7 4.1 6.9 5.9 5.5 5.2Sierra Leone 6.2 2.9 7.0 4.1 4.8 5.0Central Afr. Rep. 4.3 6.8 5.1 3.9 5.0Congo, Rep. Of 3.5 2.3 6.8 7.0 4.8 4.9Zimbabwe 4.7 5.0 2.8 6.3 5.4 4.8Togo 4.4 3.5 6.5 4.4 4.7Malawi 4.2 5.9 2.1 6.0 5.1 4.7Guinea-Bissau 4.6 2.9 2.6 5.1 3.8Congo, Dem. R. 4.4 1.7 2.5 4.0 3.2Average 5.5 4.5 6.0 5.9 5.0 5.4
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How important is it to have a sound legal structure with security of property rights and rule of law?
Our analysis indicates that a legal structure that provides for evenhanded enforcement of contracts and security of property rights is vitally important. When it is absent, gains from trade will go unrealized and both entrepreneurship and investment will flow elsewhere.
A comparison between the highest 20 and lowest 20 countries in the legal area illustrates this point. The average per capita GDP of the 20 highest rated countries in the legal area was $26,367 compared to an average of $2,629 for the 20 lowest rated countries. Similarly, the growth rate in the 1990s of the top 20 was 2.26% per year compared to -0.26% per year among the bottom 20.
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Legal structure ratings and economic performance.
Countries
2. Legal System & Property Rights, 2000
Gross National Income
per capita, ppp US$,
2000
GDP per capita % growth, 1990-2000
Netherlands 9.62 $26,170 2.3Denmark 9.54 $27,120 2.0Australia 9.49 $25,370 2.9Finland 9.49 $24,610 2.4Austria 9.34 $26,310 1.5United Kingdom 9.29 $23,550 2.1Switzerland 9.27 $30,350 0.0Canada 9.27 $27,330 1.9United States 9.23 $34,260 2.2Germany 9.14 $25,010 1.2New Zealand 9.10 $18,780 1.9Iceland 9.03 $28,770Sweden 9.02 $23,770 1.4Ireland 8.97 $25,470 6.5Norway 8.85 $29,760 3.0Singapore 8.53 $24,970 5.0Luxembourg 8.35 $45,410Namibia 8.35 $6,440 1.6Belgium 8.29 $27,500 1.7Japan 8.18 $26,400 1.0
Average 9.02 $26,368 2.26
Countries
2. Legal System & Property Rights, 2000
Gross National Income
per capita, ppp US$,
2000
GDP per capita % growth, 1990-2000
Peru 3.94 $4,720 3.0Venezuela 3.75 $5,750 -0.5Nigeria 3.62 $790 -0.4Cote d'Ivoire 3.55 $1,520 0.5Togo 3.55 $1,450 -0.2Honduras 3.54 $2,390 0.4Paraguay 3.53 $4,460 -0.4Colombia 3.53 $5,890 1.1Bolivia 3.43 $2,380 1.7Indonesia 3.36 $2,840 2.5Ecuador 3.30 $2,920 -0.3Guatemala 2.95 $3,770 1.5Guinea-Bissau 2.95 $700Myanmar 2.95Pakistan 2.95 $1,960 1.2Sierra Leone 2.95 $460 -6.8Bangladesh 2.89 $1,650 3.2Algeria 2.35 $5,040 0.2Congo, Rep. Of 2.35 $590 -3.0Congo, Dem. R. 1.75 $682 -8.3Average 3.16 $2,630 -0.26
Top 20 Countries Bottom 20 Countries
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The End……phew!
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