Index of Economic Freedom

The Index of Economic Freedom is an annual ranking made each year since 1995 by the Heritage Foundation and The Wall Street Journal. It shows how free the economy is in countries around the world.

The people who make this index say they are inspired by Adam Smith’s book, The Wealth of Nations. They believe that when people are free to work and trade on their own, it helps everyone become richer and happier.

This index helps us see which countries give people the most freedom to make their own economic choices and which ones do not. It is used to compare how different nations support business and trade.

Purpose

Further information: The Heritage Foundation

The Index of Economic Freedom explains that everyone should have the right to control their own work and property. In places where people are free to work, produce, and spend money as they choose, life tends to be better. The Heritage Foundation makes this index every year to show which countries let people have these freedoms.

Countries that rank high on the index usually have more money per person than those that rank lower. Some experts say that when people have more freedom to make their own choices, they are happier. They also believe that freedom helps people work together and can help prevent wars.

Ratings

From 1995 to 2008, the world’s economic freedom score went up by 2.6 points. But between 2008 and 2011, it went down a little, to 59.7. Even so, by 2011 it was still 2.2 points higher than in 1995. Most countries, especially developing and emerging economies, saw improvements. Except for Europe and North America, all regions had more economic freedom, with the biggest gains in Sub-Saharan Africa. The top five economies in 2011 were Hong Kong, Singapore, Australia, New Zealand, and Switzerland.

In 2011, the United States fell to 9th place, behind Denmark, Canada, and Hong Kong. The Heritage Foundation said that higher government spending was a main reason for this drop. They found that countries with less government spending grew faster. In 2012, global economic freedom fell to its second lowest level in ten years, and the U.S. dropped to 10th place. The Heritage Foundation said that too much government spending not only didn’t help the economic crisis but might have made it worse by increasing public debt and creating more bureaucracy.

Hong Kong

For 25 years, from 1995 to 2019, Hong Kong was rated the world’s most free economy. But in 2021, after new laws were put in place, the Heritage Foundation stopped listing Hong Kong and Macau separately, saying their policies were controlled from Beijing. In 2019, China ranked 107th out of 178 countries in economic freedom.

Methodology

The Index looks at 184 countries to see how free their economies are. It checks four main areas: rule of law, how big the government is, how well rules are made, and how open markets are. It also looks at specific things like property rights, how well courts work, how honest the government is, and the weight of taxes. Countries are scored from 0 to 100, where 0 means no economic freedom and 100 means total economic freedom. The index has twelve different parts grouped into these four categories.

Reception

In 2001, a group called Freedom House said there was a strong link between countries that are free politically and those that are free economically.

In 2005, a writer named Jeffrey Sachs looked at the ratings of countries and how much their economies grew. He said the ratings did not show a clear link to how well economies were doing. For example, some countries with good ratings, like Switzerland and Uruguay, did not grow quickly, while others with lower ratings, like China, grew a lot.

Others have also questioned how useful the index is because some of the ways it measures freedom can be unclear.