Economic Freedom of the World: 2000 Annual Report

The index presented in this report represents a continuation of our efforts to develop an objective measure of economic freedom. Ratings are presented for 57 nations in 1970, 83 in 1975, 107 in 1980, 111 in 1985, 115 in 1990, 122 in 1995, and 123 in 1997. This is the first publication to present ratings for 1970. Although more recent data are available for some components, we present 1997 data mainly because the data for that year are virtually complete.

The summary index is based on 23 components designed to identify the consistency of institutional arrangements and policies with economic freedom in seven major areas. The seven areas covered by the index are: (I) size of government, (II) economic structure and use of markets, (III) monetary policy and price stability, (IV) freedom to use alternative currencies, (V) legal structure and security of private ownership, (VI) freedom to trade with foreigners, and (VII) freedom of exchange in capital markets. Principal component analysis was used to combine the component ratings into area ratings and the area ratings into a summary rating. See Exhibit 1 for a list of the components that make up the index. Appendix 2 contains explanatory notes and data sources for all the components used in the calculation of the index.

In 1997, the most recent year for which we had complete data, Hong Kong and Singapore shared the top ranking with an economic freedom rating of 9.4 on a scale of 10. New Zealand, the United States, and the United Kingdom were next on the list; these were the five freest economies in the world. Other countries ranking near the top of the list were Ireland, Canada, Australia, Netherlands, Luxembourg, and Switzerland.

The least free economies in 1997 were (in order from the bottom of the list) Myanmar, Democratic Republic of Congo, Sierra Leone, Rwanda, Madagascar, Guinea-Bissau, Algeria, Burundi, Republic of Congo, Central African Republic, and Albania. See Exhibit 2 for the complete presentation of the summary ratings for 1997 ranked from highest to lowest. Exhibit 3 presents the summary ratings from 1970 to 1997 alphabetically. Appendix 1 reports the Area ratings for the period from 1970 to 1997.

A number of Latin American countries have achieved dramatic improvements in both ratings and rankings during the 1990s. Peru, Nicaragua, Argentina, El Salvador, and Dominican Republic all improved their ratings by at least 2 points. The improvement in rankings was even more dramatic. For instance, Argentina went from 71st to 12th place.

Among eastern European nations, Russia, Hungary and Poland have made measured improvements in economic freedom. The Czech Republic, however, has seen its rating stagnate since the mid-1990s.

This report also presents several bar charts linking the economic freedom summary rating with various measures of economic and social welfare. For instance, Exhibit 4 shows that the nations in the top quintile of the ranking for economic freedom produce a per-capita income of over $18,000; those in the bottom quintile produce a per-capita income under $2000. Exhibit 7 shows a 20-year difference in life expectancy between the top and bottom quintiles. See Exhibits 4 through 8 for more details.

Country Reports have been written for 65 countries. These reports present a bar chart with the country's summary economic-freedom rating and ranking, a bar chart with total government expenditures as a share of GDP, and a written summary of the country's economic freedom performance and prospects.

Country Data Tables have been constructed that show, for years 1970, 1975, 1980, 1985, 1990, 1995, and 1997, the component ratings (and often also the raw data), the area ratings, and the summary ratings and rankings of all countries evaluated.

Appendix 3 lists some of the many academic books, articles, and studies that have used the various editions of Economic Freedom of the World as source material.