Ten Consequences of Economic Freedom

Studies | Economy

No. 268
Friday, July 30, 2004
by James Gwartney and Robert Lawson


Introduction

"Economically freer countries outperform less free ones."

Beginning in 1986, Michael Walker of the Fraser Institute and Nobel Laureate Milton Friedman were hosts to a series of conferences that focused on the measurement of economic freedom. Several other leading scholars, including Nobel Prize winners Gary Becker and Douglass North, also participated in the series. The conferences, held from 1986 to 1994, eventually led to the development of the Economic Freedom of the World (EFW) index, which now uses 38 different components to measure economic freedom in five major areas: size of government, legal structure and protection of property rights, sound money, international exchange and regulation.1

The actual data for each of the 38 components are converted to a zero-to-ten scale and then are used to derive each country's ratings in the five areas and summary or overall scores, where a higher score indicates more economic freedom. The index is published annually and current data are available for 123 countries. Data are also available at five-year intervals for approximately 100 countries back to 1980.

The purpose of the EFW Project was to develop a measure that was both comprehensive and objective. The index was designed so that the subjective views and preconceptions of the researchers assembling the data and calculating the index would not influence the rating of any country.


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