1 Economic Freedom of the World: 2002 Annual Report n Presentation to n Fraser Institute Press Conference n Calgary n June 24, 2002 n Fred McMahon and.

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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

13

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

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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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