Economic Freedom of North America in 2021

Economic Freedom of North America 2023 is the nineteenth edition of the Fraser Institute’s annual report. This year it measures the extent to which—in 2021, the year with the most recent available comprehensive data—the policies of North American jurisdictions were supportive of economic freedom, the ability of individuals to act in the economic sphere free of undue restrictions. There are two indices: one that examines provincial/state and municipal/local governments only and another that includes federal governments as well. The former, our subnational index, is for comparison of individual jurisdictions within the same country. The latter, our all-government index, is for comparison of jurisdictions in different countries.

For the subnational index, Economic Freedom of North America employs 10 variables for the 92 provincial/state governments in Canada, the United States, and Mexico, and for the US territory of Puerto Rico in three areas: 1. Government Spending; 2. Taxes; and 3. Labor Market Freedom. In the case of the all-government index, we incorporate three additional areas at the federal level from Economic Freedom of the World (EFW): 4. Legal Systems and Property Rights; 5. Sound Money; and 6. Freedom to Trade Internationally; and we expand Area 1 to include government investment (variable 1C in EFW), Area 2 to include top marginal income and payroll tax rates (variable 1Dii in EFW), and Area 3 to include credit market regulation and business regulations (also at the federal level). These additions help capture restrictions on economic freedom that are difficult to measure at the provincial/state and municipal/local level.

Results for Canada, the United States, and Mexico

The all-government index

The all-government index includes data from Economic Freedom of the World (Gwartney, Lawson, and Murphy, 2023). These data, available only on the national level, enable better comparisons among Canadian, Mexican, and US subnational jurisdictions that take into account national policies affecting all jurisdictions within each country. Canada and the United States have similar scores in Economic Freedom of the World; both have typically been among the top 10 nations, though Canada fell out of the top 10 in 2021 (reflecting conditions in 2019) and has remained out since then. Mexico ranks much lower, at 64th this year; this is an improvement over past years.

The top jurisdiction in the all-government index of Economic Freedom of North America 2023 is New Hampshire at 8.14, followed by Florida (8.07), South Carolina (8.06), and then Idaho and Indiana, tied for fourth (8.05). Alberta is the highest-ranking Canadian province, tied for 31st place with a score of 7.90. The next highest Canadian province is British Columbia in 45th at 7.80. Alberta had spent seven years at the top of the index but fell out of the top spot in the 2018 report (reflecting 2016 data) and has fallen further to outside the top 20 since then.

For the first time, we have made a preliminary attempt to include the US territory of Puerto Rico in the US all-government index. Puerto Rico ranks 61st at 6.65, 0.82 below the lowest-ranked Canadian province and only 0.08 above the highest-ranked Mexican state. The highest-ranked of the 32 Mexican states are Baja California and Chihuahua with 6.62, followed by Nayarit (6.57), Baja California (6.56), Yucatan (6.53), and Tlaxcala (6.52). They are nearly a full point behind those ranking lowest in Canada and the United States. The lowest-ranked Mexican state is Ciudad de México at 5.55, followed by Colima at 5.88, and Campeche at 6.02.

Seven of the Canadian provinces are ranked behind all 50 US states. Newfoundland & Labrador is 60th with a score of 7.47, just behind Prince Edward Island and New Brunswick (7.52), and Nova Scotia (7.54). The lowest ranked of the United States are Delaware (53rd, 7.69), New York (52nd, 7.71), and Hawaii (tied for 50th, 7.74).

The subnational indices

For the purpose of comparing jurisdictions within the same country, the subnational indices are the appropriate choice. There is a separate subnational index for each country. In Canada, the most economically free province in 2021 was again Alberta with 6.26, followed by Ontario and Manitoba, over a full point behind, tied with 5.12. The least free by far was Quebec at 2.67, following Prince Edward Island at 4.01, and Nova Scotia at 4.04.

In the United States, the most economically free state on the subnational index was New Hampshire at 7.96, followed by Florida at 7.80, Tennessee at 7.73, Texas at 7.64, and South Dakota at 7.59. (Note that since the indices were calculated separately for each country, the numeric scores on the subnational indices are not directly comparable across countries.) The least-free state was again New York at 4.09, following California and Vermont at 4.27, Oregon at 4.56, and Hawaii at 4.58. For the second year, we have made a preliminary attempt to include the US territory of Puerto Rico in the US subnational index. It came in with a score of 2.85. The next lowest score was 43% higher.

In Mexico, the most economically free state was Michoacán de Ocampo at 5.96. Baja California was second at 5.85, followed by Chihuahua at 5.52. The least free Mexican states were Quintana Roo Zacatecas at 2.41, Campeche at 2.86, and Tabasco at 2.99.

In addition to the tables found in chapter 4, our new interactive website contains all the latest scores and rankings for each of the components of the index as well as historical data on the overall and area scores. The full dataset is also available for download at that same website.

Economic freedom and economic well-being at the subnational level

The jurisdictions in the least economically free quartile (one fourth) on the all-government index had, in 2021, an average per-capita income of just US$2,696, compared to US$59,401 for the most economically free quartile. On the subnational indices, the same relationship holds, with the least-free quartile having an average per-capita income 2.1% below their country’s average, while the most-free quartile was 3.7% above the country’s average.

In addition, economic freedom at the subnational level has generally been found to be positively associated with a variety of measures of the per-capita size of the economy and the growth of the economy as well as various measures of entrepreneurial activity. There are now more than 370 articles by independent researchers examining subnational economic freedom using the data from Economic Freedom of North America. (Appendix C lists some of the most recent ones.) Much of that literature discusses economic growth or entrepreneurship but the list also includes studies of a variety of topics such as income inequality, eminent domain, and labor markets. The vast majority of the results find higher levels of economic freedom to be correlated with positive outcomes, such as economic growth, lower unemployment, reduced poverty, and so on. The results of these studies tend to mirror those found for these same relationships at the country level using the index published in Economic Freedom of the World.