Economic Policy Review ISSN 1313 - 0544

Economic Freedom of the World: 2007 Annual Report

Author: Petar Ganev / 27.09.2007
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"The cornerstones of economic freedom are personal choice, voluntary exchange, freedom to compete, and security of private property!"

The Fraser Institute, Canada

Hong Kong once again tops international rankings for economic freedom, with Singapore a close second and New Zealand in third spot, according to the Economic Freedom of the World: 2007 Annual Report, published by The Fraser Institute. Zimbabwe and Myanmar had the lowest economic freedom ratings of the 141 countries measured.

Bulgaria improved its position since last year with 9 places and its ranked 56 with the highest rating of economic freedom ever, 6.9 out of 10. Bulgaria shares this position with countries like Poland, Greece and Uruguay.

Economic Freedom of the World, measures the degree to which the policies and institutions of countries are supportive of economic freedom. The annual peer-reviewed report uses 42 different measures to create an index ranking countries around the world based on policies that encourage economic freedom. Research shows that individuals living in countries with high levels of economic freedom enjoy higher levels of prosperity, greater individual freedoms, and longer life spans.

This year's publication ranks 141 nations for 2005, the most recent year for which data are available. The report also updates data in earlier reports in instances where data have been revised.

International Rankings

In this year's main index, Hong Kong retains the highest rating for economic freedom, 8.9 out of 10. The other top scorers are: Singapore (8.8), New Zealand (8.5), Switzerland (8.3), Canada (8.1), United Kingdom (8.1), United States (8.1), Estonia (8.0), Australia (7.9), and Ireland (7.9).

The rankings and scores of other large economies are Germany, 18 (7.6); Japan, 22 (7.5); Mexico, 44 (7.1); France, 52 (7.0); Italy, 52 (7.0); India, 69 (6.6); China, 86 (6.3); Brazil, 101 (6.0); and Russia, 112 (5.8).

The majority of nations ranked near the bottom are African and all the nations in the bottom 10 are African, with the exceptions of Venezuela and Myanmar. They are: Zimbabwe (2.9), Myanmar (3.8), the Democratic Republic of the Congo, (4.0), Angola (4.2), the Republic of the Congo, (4.3), Central Africa Republic, (4.6), Venezuela (4.9), Burundi (5.0), Chad (5.1), Togo (5.1) and Niger (5.1). Botswana's ranking, tied for 38th with a score of 7.2, is the best among sub-Saharan African nations.

"Weakness in the rule of law and property rights is particularly pronounced in sub-Saharan Africa, in many parts of the Middle East, and for several nations that were part of the former Soviet bloc although some of these nations have shown improvement," said James Gwartney, lead author of the report and a Professor of Economics at Florida State University.

"Many Latin American and Southeast Asian nations also score poorly for rule of law and property rights. The nations that rank poorly in this category also tend to score poorly in the trade and regulation categories, even though several have reasonably sized governments and sound money."

This year 11 additional countries have been added to the index. These countries are Angola (4.2, 138th), Bosnia and Herzegovina (6.1, 97th), Burkina Faso (5.5, 122nd), Ethiopia (6.0, 101st), Kazakhstan (7.3, 32nd), Kyrgyz Republic (6.8, 60th), Lesotho (6.8, 60th), Mauritania (6.5, 76th), Moldova (6.5, 76th), Montenegro (6.8, 60th), and Serbia (5.6, 119th).

Global Spread of Economic Freedom

The 2007 edition of the Economic Freedom of the World report also includes new research from Russell Sobel, economics professor at West Virginia University, and Peter Leeson, professor in the study of capitalism at George Mason University, showing how economic freedom spreads between countries.

Sobel and Leeson note that historically, many foreign policy decisions have been based on the notion that economic reforms in a few key nations would substantially improve the economies of other countries throughout the region - the so-called "domino effect."

The authors conclude that while economic freedom changes in one country have only a modest impact on neighbouring countries, when multiple neighbours experience simultaneous changes in economic freedom, the impact is much greater. Broad regional changes in freedom can and do have significant impacts on surrounding countries. By liberalizing trade with foreign nations, economically free countries can exert a positive, if modest, impact on economic freedom in less free nations.

This research indicates that free-trade agreements allowing a number of nations to simultaneously coordinate trade liberalization could have a sizeable influence on spreading economic freedom to economically repressed regions of the world, Sobel and Leeson said.

Economic Freedom in Bulgaria

During the last 15 years the economic freedom in Bulgaria is continuously improving, starting from score of 4.3 in 1990 and reaching 6.9 in 2005. This year score is higher than the previous one (2004) with 0.5 points. That means that Bulgarian performance is improving even faster than before.

Scores of Bulgaria 1990 - 2005

Source: Economic Freedom of the World: 2007 Annual Report

 

 

 

 

 

 

Bulgaria scores in key components of economic freedom (from 1 to 10 where a higher value indicates a higher level of economic freedom):

  • Size of government: 5.8 (5.0 in 2004);
  • Legal structures and security of property rights: 5.7 (4.6 in 2004);
  • Access to sound money: 8.9 (8.7 in 2004);
  • Freedom to trade internationally: 7.2 (7.3 in 2004);
  • Regulation of credit, labour and business: 6.7 (6.2 in 2004).

This improvement of Bulgarian score is mainly because of the performance in the first two key components. Size of government, measures the government interference in the economic life, is rather better then the previous years. In 2005, Bulgarian government cut both personal income tax and corporate income tax. Continued privatization influenced this key component too, as BTC - Bulgarian Telecommunications Company was privatized in 2005. Legal structures and security of property rights is doing better mainly because of the better protection of property rights and measures of the new subcomponent regulatory restrictions on sale of real property.

The highest score of Bulgaria through the years is making strong impact on the Bulgarian place in the international ranking of economic freedom. Bulgaria is ranked 56th from 141 nations, while last years it was ranked 67th. Since 2000, Bulgaria improved its position with 50 places, from 106th to 56th.

Rankings of Bulgaria 1990 - 2005

Source: Economic Freedom of the World: 2007 Annual Report

This year's annual report shows that the economic freedom is still spreading in Bulgaria. This process is giving the people more opportunities to prosper and live better. We should continue to follow this path of development and key reforms like already announced introduction of flat tax form 2008 are vital for the economic freedom in Bulgaria.

 

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The annual report is published in conjunction with the Economic Freedom Network, a group of independent research and educational institutes in over 70 nations.

For more information on the Economic Freedom Network, data sets, and previous Economic Freedom of the World reports, visit http://www.freetheworld.com/