Increasing Economic Freedom Leads to Greater Democracy and Prosperity

First Published: 2003-07-07

8 July 2003—The Economic Freedom of the World: 2003 Annual Report, released today by The Fraser Institute, provides a roadmap for building prosperous and democratic nations, according to Nobel Laureates who helped construct the report.

There is a clear correlation between countries scoring high on the UN’s Human Development Index, also released today, and those countries that score well in the Economic Freedom Report. The more economically free a country, the greater the level of human development enjoyed by its citizens.

“Freeing people economically unleashes individual drive and initiative and puts a nation on the road to economic growth,” says Nobel Laureate Milton Friedman, one of the original creators of the Economic Freedom Index. “In turn, economic prosperity and independence from government promote civil and political liberty.”

The key ingredients of economic freedom are personal choice, voluntary exchange, freedom to compete, and the protection of person and property. Using 38 variables for each country (where available) the report measures the institutions essential to ensuring the rule of law, property rights, freedom to trade, sensible regulation, and reasonably sized government.

“The UN Index provides a measure of success but the Economic Freedom Report goes a step farther and provides a recipe for progress,” says Fred McMahon, the Institute’s director of trade and globalization studies. “Economic freedom is the key component for developing free and thriving nations.

One way economic freedom advances prosperity is by attracting increased investment. The top fifth economically-free nations draw in an average foreign per capita investment of US$2,657 compared to US$52 in the least free nations.

“Growth and prosperity reflect the policies and institutions of an economy,” says the Report’s co-author James Gwartney of Florida State University. “Countries prosper when they establish an environment where individuals can engage in productive activities and invest for the future. On the other hand, countries will stagnate when their legal system and regulatory policies restrict trade, undermine the security of property rights, and erode the value of money.”

Economic Freedom Leads to Greater Prosperity

Empirical research shows economic freedom leads to economic progress. As Nobel Laureate Douglass North says, “The closest thing we have to [an explanation of efficient markets] is the Economic Freedom of the World Annual Report.”

Freer economies lead to richer people and richer people eventually demand political and civil freedoms. “As developed nations — those that have reached high levels of economic freedom and therefore high levels of wealth and democracy — look to help people in failed and war-torn nations, economic freedom provides a roadmap to building the institutions necessary for economic and political success,” says co-author Robert Lawson of Ohio’s Capital University.

About the Index

The first Economic Freedom of the World Report, published in 1996, was the result of decade’s research by more than 100 leading scholars, including several Nobel Laureates, in a broad range of fields, from economics to political science, from law to philosophy. The Institute coordinates the Economic Freedom reports along with the Economic Freedom Network, a collaboration of member institutes in 59 nations.

This, the seventh edition of Economic Freedom of the World, rates and ranks 123 nations for 2001, the most recent year for which data are available. The Bahamas rates 6.1 (of ten) and is ranked 51 of 123 countries

The data in the report may be downloaded from www.freetheworld.com, along with the full report.

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