TORONTO, ONTARIO--Delaware and Texas are the most
economically free states in the U.S., while West Virginia has
the dubious distinction of being the least economically free,
according to a new study from the Fraser Institute.
"Economic freedom is one of the main drivers of prosperity
and growth. States with low levels of economic freedom reduce
the ability of their citizens to prosper economically, leaving
people poorer than they need be," said Fred McMahon, co-author
of the report and director of globalization studies at the
Fraser Institute, an economic think tank with offices
throughout North America.
States with the next highest levels of economic freedom are
Colorado, Georgia, and North Carolina. Maine and Mississippi
join West Virginia near the bottom of the rankings.
The Institute's peer-reviewed study,
Economic Freedom of North America: 2008 Annual Report, measures the impact of economic freedom on the level of economic activity and the growth of economic activity in 50
U.S. states and 10 Canadian provinces by creating an index
utilizing 10 components based on size of government, taxation,
and labor market freedom.
The Economic Freedom of North America index is an offshoot
of the Fraser Institute's
Economic Freedom of the World
index, the result of two decades of work by more than 60
scholars, including three Nobel Laureates.
This year's Economic Freedom of North America report
includes a new overview of economic freedom in different
regions of the United States.
"This snapshot of economic freedom in the Northeast, the
Southeast, the Midwest, the Southwest, and the West allows for
comparisons between neighboring states in a number of
categories," said Alan Dowd, Fraser Institute senior fellow and
contributor to the report.
"For instance, it's interesting to note that the states with
the best record of economic freedom are predominately in the
western half of the country."
Between 2000 and 2005, North Dakota had the fastest growth
in economic freedom with Wyoming and Montana tied for second.
South Dakota, Nevada, Nebraska, Iowa, and Florida tied for
New Mexico stands out as the only state with negative growth
in economic freedom between 2000 and 2005. Arizona had the
second lowest growth rate, with Connecticut, Michigan, South
Carolina, New York, and Ohio all tied for third lowest.
Over this same time period, per-capita GDP in the United
States grew by nine percent, compared to five percent in the
states with the worst growth record and 18 percent in the
states with the best.
Reinforcing the notion that economic freedom leads to
greater prosperity, the 2008 report shows that Colorado,
Georgia, Delaware, North Carolina, New Hampshire, Tennessee,
and Texas - states with consistently strong records of economic
freedom - had a GDP per capita that was more than $4,300 above
the American average in 2005. Plus, their growth from 1981 to
2005 is nearly 20 percentage points higher.
By comparison, West Virginia, Hawaii, Maine, Montana, New
Mexico, North Dakota, and Rhode Island are states with low
levels of economic freedom. Their average per-capita GDP was
more than $4,300 below the American average in 2005, and their
total growth from 1981 to 2005 was 10 percentage points below
the US average of 45 percent total growth in real terms.
"States with high levels of economic freedom are those that
tend to have lower taxes, smaller government, and flexible
labor markets. These conditions create jobs and opportunities
leading to economic growth," McMahon said.
Delaware, the most economically free state, has the best
score for both low levels of government and low taxes. Nevada
and Texas are second and third for low levels of government
with Alaska and South Dakota ranked second and third for low
States in the South and Southwest tend to have the best
scores for labor market freedom, with North Carolina and Texas
leading the way, followed closely by Georgia and Virginia.
The states with low scores on these measures have
corresponding low levels of economic freedom. Of the lowest
ranked states - West Virginia, Hawaii, Maine, Montana,
New Mexico, North Dakota, and Rhode Island - none ranks above
35th on size of government (at the all-government level). None
ranks higher than 33rd on overall taxation. And all of these
rank in the bottom 25 on labor market freedom at the state and
"Overall, many U.S. states are well positioned to take
advantage of economic growth opportunities and continue to
provide an environment of prosperity and opportunity for their
residents," McMahon said.
"But for states with low levels of economic freedom, the
future is less rosy. These states would be well advised to
reconsider the policies they have in place that restrict