The index published in Economic Freedom of the World measures the degree to which the policies and institutions of countries are supportive of economic freedom. The cornerstones of freedom are personal choice, voluntary exchange, freedom to compete, and security of privately owned property. Thirty-eight data points are used to construct a summary index and to measure the degree of economic freedom in five areas: (1) size of government; (2) legal structure and security of property rights; (3) access to sound money; (4) freedom to trade internationally; and (5) regulation of credit, labour, and business.
A special chapter by William Easterly of New York University compares the impact of economic freedom with that of foreign aid, the old nostrum for creating economic well-being in the developing world. He shows that foreign aid is ineffective, but he has extremely good news for poorer countries. They can lift themselves from poverty on their own, without depending on uncertain and often politically motivated outside "help."
Dr. Easterly shows that economic freedom is a powerful tonic for growth. Quite literally, poorer nations only need liberate their people from policies that limit economic freedom. The unleashed dynamism and ingenuity will build prosperity and reduce poverty in a way that foreign aid has repeatedly failed to achieve.
