Economic Freedom of the World: 2001 Annual Report

This is the fifth edition of Economic Freedom of the World . Chapter 1 of this report updates the data from the earlier editions and presents an economic freedom index for 123 countries for 1999. Exhibit 1-1 shows the 21 components used to construct the index.

In 1999, Hong Kong remained in first place with a rating of 9.4 (out of 10), followed closely by Singapore at 9.3. New Zealand ranked 3, the United Kingdom 4, and the United States 5. Australia, Ireland, Switzerland, Luxembourg, and the Netherlands round out the top ten. The rankings of other large economies include Canada (13), Germany (15), Japan (20), Italy (24), France (34), Taiwan (38), Mexico (62), China (81), India (92), Brazil (96), and Russia (117). Myanmar, Algeria, the Democratic Republic of Congo, Guinea-Bissau, and Sierra Leone rated lowest among the 123 countries for which data were available. See Exhibit 1-2.

The economic freedom index is shown to correlate positively with measures of income per capita, economic growth, the United Nations Human Development Index, and longevity. It correlates negatively with indexes of corruption and poverty. Exhibits 1-4 through 1-9 illustrate these relationships.

Chapter 2 uses survey data to supplement the objective components of the main index and develops a more comprehensive index of economic freedom for 58 countries. This more detailed index integrates a number of factors that, until now, have either been omitted or poorly reflected in the economic freedom index. Specifically, it provides a more accurate reflection of cross-country differences in the freedom to contract and compete in business activities and labor markets. The more comprehensive index is constructed for 58 rather than 123 countries because of limitations in the data. See Exhibit 2- 8 for the more comprehensive ratings. Exhibit 2-9 compares the more comprehensive index with the economic freedom index for 123 countries described in chapter 1.

Chapter 3 constructs a Trade Openness Index for the period from 1980 to 1999 using selected components of the economic freedom index. See Exhibits 3-1 and 3-2. This chapter investigates the linkage between the openness of international trade and income levels and growth rates. See Exhibits 3-3 through 3-6.

Chapter 4 discusses how to measure the strength of protection of property rights in ideas. Such a measure could be used for academic research, policy evaluation, or comparisons of intellectual property regimes across countries and over time. Chapter 4 focuses on quantifying the level of patent rights protection.

Chapter 5 presents detailed Country Reports with component, area and overall ratings and rankings for all the countries in the data set from 1970 to 1999.