During the past year economies around the world became more open – according to the newly released Index of Economic Freedom published by the Heritage Foundation and the Wall Street Journal. Who holds the number 1 spot? Hong Kong (again).
“The countries with the most economic freedom also have higher rates of long-term economic growth and are more prosperous than are those with less economic freedom,” the report says.
Of the 157 countries graded in the 2006 Index, 99 improved their overall scores, compared to 51 whose scores worsened and five that remained unchanged. Overall, 20 are classified as “free,” 52 as “mostly free,” 73 as “mostly unfree” and 12 as “repressed.”
Here are the “Top 10 Improved” countries
Pakistan
Romania
Kyrgyz Republic
Suriname
Armenia
Turkmenistan
Georgia
Turkey
Tajikistan
Kazakhstan
The only region where we can observe a net decline in economic freedom during the past year? Middle East and North Africa, according to the report.
The prosperous countries of the North America/Europe region—spurred by rapid moves toward economic freedom by the former Soviet republics—show consistent improvement. But regions such as Latin America, the Middle East and Sub-Saharan Africa, which, to its credit, continues to improve on its Index scores—continue to lag behind in prosperity because of the protectionist economic policies of their governments.
As the authors note, countries with higher degrees of economic freedom enjoy higher long-term economic growth rates. But does this mean that it is easier for economically open countries to remain liberal in economic sense and thus preserve and improve the institutions that spur economic growth? Do higher economic growth rates reinforce liberal economic policies which in turn lead to higher economic growth rates? Would this also mean that countries with closed economies observe lower rates of economic growth which also restrict economic liberalization through bad economic policies? If this circular relationship between economic openness and economic growth does exist, it could be bad news for countries at the bottom of the index, since this would mean that the income gap between countries at the top of the index and countries at the bottom would only increase in the coming decades. I wonder if anyone has done any studies on this.
A nice interactive tool that allows you to search the database is available here.
Published Date: January 05, 2006