The Economic Freedom of the World: 2004 Report, the 8th edition, (published by the Fraser Institute, British Columbia) was released today by research institutes in over 60 countries; and the news about the Bahamas may come as a wakeup call.
In 1995 the Bahamas ranked 21st in a list of 115 countries putting it in the 18th percentile. Seven years later it has dropped in the ranking to 68th out of 123 countries placing the country in the 59th percentile. Furthermore, it dropped 15 places between 2002 and 2003…only Argentina, Egypt, Madagascar & Venezuela declined more.
The core of the Report is an Index that captures in numbers 38 factors that directly affect economic activity. These factors range from measures of government size (example, government spending) to the regulation of business (price controls, administrative obstacles for new businesses, etc.). This composite index is the result of a decade of research by a team that has included several Nobel Laureates and over 60 other leading scholars in a broad range of fields, from economics to political science and from law to philosophy.
– Economically free nations attract nearly $11,000 of investment per worker, 12 times more than the $845 investment per worker in "unfree" economies. Nations with middling levels of freedom attract $3,319 (numbers in constant 1995 US$) of investment per worker.
– Foreign direct investment (FDI) has a particularly powerful effect in promoting growth and technology transfer. Free economies attract $3,117 of FDI per worker, compared to $444 for the middling group and only $68 for the least free nations. "Remarkably, the FDI per worker of the persistently free economies was more than 45 times the figure for the persistently 'unfree' group."
– Economic freedom boosts prosperity through two routes: by unleashing the drive and ingenuity of individuals and by increased investment. The result is consistent with empirical research in the world's pre-eminent peer reviewed journals — including The American Economic Review, The European Journal of Political Economy, and The Journal of Private Enterprise — that shows economic freedom has a powerful and positive effect on growth and prosperity.
– Economically free nations experienced greater economic growth…a 3.4 percent growth a year from 1980 to 2000. This compares to 1.7 percent for countries with middling economic freedom and just 0.4 percent for "unfree" nations.
The Report does not include extensive discussion of any country including the Bahamas. However, the numeric rankings paint an interesting picture:
– Hong Kong retains the highest rating for economic freedom (8.7 of 10) closely followed by Singapore at 8.6. New Zealand, Switzerland, United Kingdom, and United States tied for third with ratings of 8.2 out of 10. The other top 10 nations are Australia, Canada, Ireland, and Luxembourg. The rankings of other large economies are Germany, 22; Japan and Italy, 36; France, 44; Mexico, 58; India, 68; Brazil, 74; China, 90; and Russia, 114.
– Most of the lowest-ranking nations are African, Latin American or former communist states. The bottom five nations were Venezuela, Central African Republic, the Democratic Republic of Congo, Zimbabwe, and Myanmar. Botswana's ranking of 18 is by far the best among continental sub-Saharan African nations. Chile, with the best record in Latin America, was tied with four other nations at 22.
– Nations in the top fifth of economic freedom have an average per capita income of $26,100 compared to $2,800 in nations in the bottom fifth of economic freedom. Economic freedom benefits the lives of all people including the poor. In nations in the top fifth of economic freedom, the average income of the poorest 10 percent of the population was $6,877 compared to just $823 in the least free nations.
In commenting on the Report Mrs. Joan Thompson, the President of the Nassau Institute, notes that –
"Economic freedom is a powerful magnet for investment. When people are free to make their own choices, they will invest in the future. So will foreign investors because they understand the opportunities economic freedom creates."
For more information on the Economic Freedom Network, data sets and previous Economic Freedom of the World reports, go to www.freetheworld.com.