Canada drops to 14th in world economic freedom ranking

web posted July 1997

The Fraser Institute, in conjunction with independent institutes from 46 other countries, recently released the 1997 edition of the Economic Freedom of the World. This 308-page report is the latest data from a decade-long Fraser Institute project to develop a comprehensive and accurate measure of differences in economic freedom across countries.

Canada falls five spots to 14th; Hong Kong tops index

Canada, which was ranked the ninth most economically free country in the world in 1995, dropped to fourteenth place in 1996. Canada's relative decline occurred even though its freedom score remained the same as last year, at 6.9 out of 10. "Canada's loss in position was due to the significant increases in economic freedom in Costa Rica, Australia, Panama, The Philippines and Mauritius, all of which were less free than Canada in last year's measurements," said Dr. Michael Walker, co-founder of the Freedom Network and executive director of the Fraser Institute.

The results conclude that Hong Kong continues to be the most economically free country in the world. Singapore moves into second place, exchanging places with New Zealand, and the United States maintains its position in fourth place. Surprises in this year's summary ratings include the emergence of Mauritius in fifth place.

This year's report rates the performance of 115 countries - many of them over the period from 1975 to the present. The ratings are done on the basis of 17 factors which measure infringements of basic economic freedoms, such as the freedom of exchange, the freedom to keep one's earnings, and the freedom to own private property and use it for personal and commercial purposes.

Data for the 17 components of the index, grouped into four categories (money and inflation, government operations and economic structure, taxes and takings, and international trade), were compiled for the 115 countries, and statistical procedures were used to assign each country with a component rating between zero and 10. The component ratings were then used to derive a summary rating for each country showing the extent to which a nation's institutional arrangements and policies are consistent with sound money, reliance on markets, avoidance of excessive and discriminatory taxes, and freedom of international exchange.

Economic Freedom leads to greater prosperity

During the last two decades the largest increases in economic freedom have been registered by New Zealand, Chile, Mauritius, Iceland, Portugal, Argentina, Uganda, Philippines, Norway and Jamaica. Not surprisingly, these countries have also experienced the largest growth in per capita GDP in the last decade. What is evident from the index is that of the 95 countries which could be measured over the 20 year period 1975-1995, when economic freedom increased by 2 units or more between 1975-1995, growth of per capita GDP averaged more than 2 per cent during 1985-96. In fact, the top quintile of the "most free" economies registered a 2.9 per cent average growth rate of per capita GDP. Correspondingly, those countries that experienced negative changes in economic freedom had negative growth rates of per capita GDP during 1985-96 (Haiti, Honduras, Iran, Nicaragua and Venezuela).

The top quintile of the "most economically free" countries had average per capita GDP of US$14 829, declining to US$2 541 for countries comprising the "least free" quintile.

China and Russia ranked for the first time

For the first time data was obtained to rate both China and Russia. China ranked 81st out of the 115 countries, and Russia 105th. Although ranked low in relation to the other countries, both showed increases in their ratings of economic freedom. China's rating rose from 2.3 in 1980 to 4.3 in 1995. Russia's rating rose from 0.9 in 1990 to 3.5 in 1995.

Since the collapse of communism, the economies of Eastern Europe and the former Soviet Union have gone through a dramatic period of transition. Although these countries rank amongst the world's 15 "least free" economies, the index does indicate that during the 1990s the above economies have made significant strides toward economic liberalism. Except for Romania, the former Soviet bloc countries recorded summary rating increases of at least 1.5 units between 1990-1995.

Data from the Economic Freedom of the World Index reveals that countries that have striven for increases in economic freedom -- and maintained such policies (especially in the Lesser Developed Countries) -- have registered positive growth rates in real GDP over the period measured. Correspondingly, economies that moved away from economic freedom were characterized by sluggish growth rates and economic decline. The research indicates that political direction towards more liberal economic frameworks creates the foundations internally for the achievement of economic growth and prosperity.

It's dry, but you can read the whole report here.




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