GeoPolitical Hot Spots: The Good News and the Bad News.

1
Geo-Political Hot Spots The Good News and the
Bad News.

• James Gwartney
• Florida State University
• Robert Lawson
• Auburn University

2
Measuring Economic Freedom

• Economic freedom is complex and multidimensional,
  but it can be measured
• Personal choice
• Freedom to trade, domestically and abroad.
• Freedom to enter and compete in markets.
• Security of Property/Rule of Law

3
Methodology

• We collect data on 141 countries using 42
  different components (grouped into five broad
  areas).
• 0-10 ratings are constructed to measure the
  degree to which the country conforms to the
  free-market ideal.
• External data from World Bank, IMF, WEF/Global
  Competitiveness Report, PRS Group, IMD, etc.
• Transparency is a highly valued part of the
  project.

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5 Areas of Economic Freedom of the World (EFW)
Index

• Size of Government Expenditures, Taxes, and
  Enterprises
• Legal Structure and Security of Property Rights
• Access to Sound Money
• Freedom to Trade Internationally
• Regulation of Credit, Labor, and Business

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Countries get higher ratings if they

• keep taxes and spending low
• protect property rights and enforce contracts
  even-handedly
• maintain stable money and low inflation
• allow free trade
• keep regulations minimal

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Highest Economic Freedom Ratings, 2005
Source EFW 2007, Exhibit 1.2.
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Economic Freedom Ratings of Selected Countries,
2005
Source EFW 2007, Exhibit 1.2.
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Why Economic Freedom is the Key to the Growth
Process

• Economic Growth is about
• Gains from trade
• Entrepreneurship
• Investment

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Economic Freedom Investment as a Share of GDP
Source 2005 Annual Report
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Economic Freedom and the Productivity of
Investment
Source 2005 Annual Report
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Economic Freedom and Economic Growth
The direct effect is the effect on growth only
through increases in overall productivity. The
indirect effect includes the effect on growth
from increases in the level of investment in
physical capital.
Source 2005 Annual Report
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Economic Freedom and Income
Source EFW 2007, Exhibit 1.6.
13
Average Economic Freedom Rating, 1980-2005
Chain-linked index. Source EFW 2007, Exhibit
1.4.
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Case Study Ireland
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Case Study United Kingdom
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Case Study New Zealand
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Case Study Chile
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Case Study Iceland
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Case Study China
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Case Study India
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Case Study Former Communist
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Case Study Venezuela
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Case Study Zimbabwe
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Key Problems forAfrica Latin America
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Case Study United States
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Economic Freedom and Life Expectancy
Source EFW 2007, Exhibit 1.11.
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Economic Freedom and Income Share of Poorest 10
Source EFW 2007, Exhibit 1.9.
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Economic Freedom and Income Level of Poorest 10
Source EFW 2007, Exhibit 1.10.
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Economic Freedom and Improved Water/Sanitation
Source EFW 2007, Exhibit 1.15, 1.16.
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Economic Freedom and Political Rights/Civil
Liberties
Source EFW 2007, Exhibit 1.18. Note Lower
values indicate greater political rights and
civil liberties.
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Economic Freedom and the Environment
Source EFW 2007, Exhibit 1.19. Note Higher
values indicate greater environmental
performance.
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