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Economic Freedom of the Arab World: 2017 Annual Report

The Arab world faces a huge challenge. Although the Arab Spring undoubtedly had a political impulse, in large measure it was driven by economic concerns: sky-high unemployment, particularly for youth; under-employment and lack of quality in the jobs that are available; elite control of the economy; economic exclusion; cronyism; and corruption (see, for example, Amin et al., 2012; Malik and Awadalla, 2011; and Sidahmed, 2014, Feb. 23). Sadly, although several nations have implemented limited political change, with Tunisia being the most successful, little if any economic reform has occurred and some nations have back-pedaled on economic policy, as the data in this report shows. The chronic economic problems that plagued the region remain in place. Even the Gulf States face immense challenges in providing quality employment in the face of population growth, the “youth bulge”, and declining oil and gas prices. As Amin and colleagues argue (2012), for the future to be better than the past, economic reform is essential. Successful political change hinges on economic success and economic freedom for all people. If people are excluded from opportunity and hope, stability and democracy are illusive.

Economic Freedom of the Arab World aims to provide a reliable and objective metric of economic policy throughout the Arab World. It measures the extent to which citizens of the nations of the Arab League are able to make their own economic decisions without limitations imposed by the government or by crony elites. The report provides sound empirical measurement of economic policy that can distinguish between phony reform that leaves economic and political power in the hands of crony elites, and real reform that creates new prosperity, entrepreneurship, and jobs, by opening business and work opportunities for everyone no matter whom they know.

Arab and Islamic societies have a rich trading tradition, one that celebrates markets open even to the humblest members of society. Economic freedom is consistent with that proud history and provides a path to a more prosperous and freer tomorrow. Economic freedom is simply the ability of individuals and families to take charge of their fate and make their own economic decisions—to sell or buy in the marketplace without discrimination, to open or close a business, to work for whom they wish or hire whom they wish, to receive investment or invest in others.

As discussed later in this report, economic freedom has a proven fact-based record of improving the lives of people, liberating them from dependence, and leading to other freedoms and democracy. Unfortunately, many in the Arab world believe their nations have already gone through a period of free-market reform and that it hasn’t worked. This misconception deprives many of an economic alternative and vision for the future.

In fact, reform was frequently phony. Economic “reform” before the Arab Spring was all too often crony capitalism dressed up in the language of free markets. In many nations, it simply replaced elite control of the economy through government with elite control through crony capitalism—handing off state assets, monopolies, and other rent-seeking opportunities to friends, supporters, and relatives of the regime. Rather than releasing entrepreneurial drive, it protected privilege.

The data in this report show little progress in increasing economic freedom during the supposed period of “neoliberal” reform. Instead, the old structures largely remained in place and mostly still remain in place. It is our hope that the empirical measure of reform and economic policy in this report will help provide a path for reform and accountability, enabling people to determine whether progress in policy reform is real or illusionary.

Printer-friendly version
Economic Freedom of the World: 2017 Annual Report

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 economic freedom are personal choice, voluntary exchange, freedom to enter markets and compete, and security of the person and privately owned property. Forty-two data points are used to construct a summary index and to measure the degree of economic freedom in five broad areas.

  • Area 1: Size of Government—As spending and taxation by government, and the size of government-controlled enterprises increase, government decision-making is substituted for individual choice and economic freedom is reduced.
  • Area 2: Legal System and Property Rights—Protection of persons and their rightfully acquired property is a central element of both economic freedom and civil society. Indeed, it is the most important function of government.
  • Area 3: Sound Money—Inflation erodes the value of rightfully earned wages and savings. Sound money is thus essential to protect property rights. When inflation is not only high but also volatile, it becomes difficult for individuals to plan for the future and thus use economic freedom effectively.
  • Area 4: Freedom to Trade Internationally—Freedom to exchange—in its broadest sense, buying, selling, making contracts, and so on—is essential to economic freedom, which is reduced when freedom to exchange does not include businesses and individuals in other nations.
  • Area 5: Regulation—Governments not only use a number of tools to limit the right to exchange internationally, they may also develop onerous regulations that limit the right to exchange, gain credit, hire or work for whom you wish, or freely operate your business.

Gender Disparity Index
This year the index published in Economic Freedom of the World includes an adjustment for gender disparity to take into account the fact that in many nations women are not legally accorded the same level of economic freedom as men.

Related research
Since our first publication in 1996, numerous studies have used the data published in Economic Freedom of the World to examine the impact of economic freedom. Virtually without exception, these studies have found that countries with institutions and policies more consistent with economic freedom have higher investment rates, more rapid economic growth, higher income levels, and a more rapid reduction in poverty rates.

The EFW index now ranks 159 countries and territories. Data available for approximately 100 nations and territories back to 1980, and for many back to 1970, make it possible for scholars to analyze the impact of cross-country differences in economic freedom and changes in that freedom across three decades.

Economic freedom around the world in 2015

Top-rated countries
Hong Kong and Singapore, once again, occupy the top two positions. The other nations in the top 10 are New Zealand, Switzerland, Ireland, the United Kingdom, Mauritius, Georgia, Australia, and Estonia.

Other major countries
The rankings of some other major countries are the United States, tied with Canada at 11th, Germany (23rd), South Korea (32nd), Japan (39th), France (52nd), Italy (54th), Mexico (76th), India (95th), Russia (100th), China (112th), and Brazil (137th).

Lowest-rated countries
The 10 lowest-rated countries are: Iran, Chad, Myanmar, Syria, Libya, Argentina, Algeria, the Republic of the Congo, the Central African Republic, and, lastly, Venezuela.

Who’s up? Who’s down?
The five nations showing the biggest declines in economic freedom from 2000 to 2015 are Venezuela, Argentina, Bolivia, Iceland, and Greece. The five nations with the largest gains in economic freedom over the period are Romania, Bulgaria, Rwanda, Albania, and Cyprus.

Nations that are economically free out-perform non-free nations in indicators of well-being

Nations in the top quartile of economic freedom had an average per-capita GDP of $42,463 in 2015, compared to $6,036 for bottom quartile nations (PPP constant 2011 US$). ◼ In the top quartile, the average income of the poorest 10% was $11,998, compared to $1,124 in the bottom quartile in 2015 (PPP constant 2011 US$). Interestingly, the average income of the poorest 10% in the most economically free nations is almost twice the average per capita income in the least free nations. ◼ Life expectancy is 80.7 years in the top quartile compared to 64.4 years in the bottom quartile.

Chapter 1: Economic Freedom of the World in 2015
The authors of the report, James Gwartney, Robert Lawson, and Joshua Hall, provide an overview of the report and discuss why economic freedom is important.

Chapter 2: Country Data Tables
Detailed historical information is provided for each of the 159 countries and territories in the index.

Chapter 3: Adjusting for Gender Disparity in Economic Freedom and Why It Matters
By Rosemarie Fike
The adjustment for gender disparity applied this year to Area 2, Legal System and Property Rights, of the index published in Economic Freedom of the World takes into account the fact that in many nations women are not legally accorded the same level of economic freedom as men. The EFW index uses many objective measures that, on their own, implicitly assume that all members of society have equal access to economic institutions, but formal legal restrictions to the economic rights of women in many countries prevent a significant portion of the population from engaging in mutually beneficial exchanges. The negative adjustment factor for gender disparity is smaller in economically free nations than in non-free nations.

Chapter 4: Economic Freedom, Social Protections, and Electoral Support for Anti-Immigrant Populist Parties in 27 Industrial Democracies
By Krishna Chaitanya Vadlamannati and Indra de Soysa
Some propose that the rise of anti-immigrant, nativist populism is the result of economic insecurity arising from globalization and suggest greater social protections can diminish communal disharmony. Others suggest that anti-immigrant sentiment is driven by “welfare chauvinism”, where residents enjoying high levels of social welfare see immigrants as threatening their livelihood. The authors test these propositions and find that the positive effect of a bigger immigrant share of the population on support for nativist populism is conditional upon higher degrees of social welfare, which reduces economic freedom.

Chapter 5: Economic Freedom in South Africa and the Constraints on Economic Policy
By Richard J. Grant
The index published in the Economic Freedom of the World covers two very distinct eras in South African history: the apartheid era and that after the transition to the “new South Africa” in 1994. The author describes in detail the rise in economic freedom and the subsequent decline. He concludes: “As economic freedom has decreased, the GDP growth rate has declined, as would be expected.

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Printer-friendly version
Economic Freedom of the Arab World: 2016 Annual Report

Economic Freedom of the Arab World aims to provide a reliable and objective metric of economic policy throughout the Arab World. It measures the extent to which citi-zens of the nations of the Arab League are able to make their own economic decisions without limitations imposed by the government or by crony elites. The report provides sound empirical measurement of economic policy that can distinguish between phony reform that leaves economic and political power in the hands of crony elites, and real reform that creates new prosperity, entrepreneurship, and jobs, by opening business and work opportunities for everyone no matter whom they know.

Arab and Islamic societies have a rich trading tradition, one that celebrates mar-kets open even to the humblest members of society. Economic freedom is consistent with that proud history and provides a path to a more prosperous and freer tomorrow. Economic freedom is simply the ability of individuals and families to take charge of their fate and make their own economic decisions—to sell or buy in the marketplace without discrimination, to open or close a business, to work for whom they wish or hire whom they wish, to receive investment or invest in others.

As discussed later in this report, economic freedom has a proven fact-based record of improving the lives of people, liberating them from dependence, and leading to other freedoms and democracy. Unfortunately, many in the Arab world believe their nations have already gone through a period of free-market reform and that it hasn’t worked. This misconception deprives many of an economic alternative and vision for the future.

In fact, reform was frequently phony. Economic “reform” before the Arab Spring was all too often crony capitalism dressed up in the language of free markets. In many nations, it simply replaced elite control of the economy through government with elite control through crony capitalism—handing off state assets, monopolies, and other rent-seeking opportunities to friends, supporters, and relatives of the regime. Rather than releasing entrepreneurial drive, it protected privilege. Yet, governments in the region and international institutions like the International Monetary Fund promoted this as “free market” reform. An examination of the tables in this report will show little or no real reform in many nations in most areas of economic policy.

However, the tables do show apparent progress in some nations in divesting state enterprises and opening up the market through privatization. This has often been illusionary. The old elites simply took the “privatized” assets and continued their control of the economy under crony capitalism. This is the very opposite of economic freedom, with the rich and the powerful suppressing the freedom and opportunity of others.

Printer-friendly version
Economic Freedom of the World: 2016 Annual Report

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 economic freedom are per-sonal choice, voluntary exchange, freedom to enter markets and com-pete, and security of the person and privately owned property. For-ty-two data points are used to construct a summary index and to meas-ure the degree of economic freedom in five broad areas: 

  • size of government: expenditures, taxes, and enterprises;
  • legal structure and security of property rights;
  • access to sound money;
  • freedom to trade internationally; and
  • regulation of credit, labor, and business.

Since our first publication in 1996, numerous studies have used the data published in Economic Freedom of the World to examine the im-pact of economic freedom on investment, economic growth, income levels, and poverty rates. Virtually without exception, these studies have found that countries with institutions and policies more consistent with economic freedom have higher investment rates, more rapid eco-nomic growth, higher income levels, and a more rapid reduction in poverty rates. 

The EFW index now ranks 159 countries and territories. Data are available for approximately 100 nations and territories back to 1980, and many back to 1970. This data set makes it possible for scholars to analyze the impact of both cross-country differences in economic free-dom and changes in that freedom across a time frame of three and a half decades. 

Economic freedom around the world in 2014 

Average chain-linked rating
The average chain-linked economic freedom rating for advanced coun-tries with ratings since 1985 has increased from 6.9 to 7.7 in 2014. The average chain-linked economic freedom rating for developing countries with ratings since 1985 has increased from 5.0 to 6.7 in 2014. 

Top-rated countries
Hong Kong and Singapore, once again, occupy the top two positions. The other nations in the top 10 are New Zealand, Switzerland, Canada, Georgia, Ireland, Mauritius, the United Arab Emirates, and Australia and the United Kingdom, tied for 10th.

Other major countries
The rankings of some other major countries: the United States (16th), Germany (30th), Japan (40th), South Korea (42nd), France (57th), Italy (69th), Mexico (88th), Russia (102nd), India (112th), China (113th) and Brazil (124th).  

Lowest-rated countries
The 10 lowest-rated countries are: Iran, Algeria, Chad, Guinea, Angola, the Central African Republic, Argentina, the Republic of the Congo, Libya and, lastly, Venezuela.

Nations that are economically free out-perform non-free nations in indicators of well-being
Nations in the top quartile of economic freedom had an average per-capita GDP of $41,228 in 2014, compared to $5,471 for bottom quartile nations (PPP constant 2011 US$).

In the top quartile, the average income of the poorest 10% was $11,283, compared to $1,080 in the bottom quartile in 2014 (PPP constant 2011 US$). Interestingly, the average income of the poorest 10% in the most economically free nations is twice the average per-capita income in the least free nations.

Life expectancy is 80.4 years in the top quartile compared to 64.0 years in the bottom quartile.

Political and civil liberties are considerably higher in economically free nations than in unfree nations.

Chapter 1: Economic Freedom of the World in 2014
The authors of the report, James Gwartney, Robert Lawson, and Josh-ua Hall, provide an overview of the report and discuss why economic freedom is important. 

Chapter 2: Country Data Tables
The chapter provides detailed historical information for each of the 159 countries and territories in the index.

Chapter 3: Gender Disparity in Legal Rights and 
Its Effect on Economic Freedom
by Rosemarie Fike
The EFW index uses many objective measures that implicitly assume that all members of society have equal access to economic institutions. This is not a reality for many women across the world. Formal legal re-strictions to the economic rights of women in many countries prevent a significant portion of the population from engaging in mutually beneficial exchanges. In addition, social norms can place very real barriers in front of women wishing to own property, operate a business, and engage in voluntary exchange. This chapter considers several alternative methods of adjusting the EFW index to account for gender bias present in the data used in its construction.

National Case Studies
Three case studies examine the profound effect of major shifts in eco-nomic freedom in three countries: Venezuela, Ireland and the United States. In each, the authors of the chapter explain the causes and re-sults of the changes in economic freedom.

Chapter 4: The Critical Role of Economic Freedom in 
Venezuela’s Predicament
by Hugo J. Faria and Hugo M. Montesinos-Yufa
Venezuela has been trapped in a lengthy decline in economic freedom that started long before Hugo Chavez assumed the presidency in 1999. But Chavez, his United Socialist Party of Venezuela, and successor, Nicolás Maduro, have presided over a continued, stunning slide in economic freedom that landed Venezuela in dead last place among approximately 150 countries from 2010 to 2014. The economic consequences have been disastrous and, if anything, are getting worse.

Chapter 5: Economic Freedom and Growth in Ireland, 1980 to 2014
by Robbie Butler and John Considine
Ireland has had a moderately high level of economic freedom back to the initial year of the EFW data in 1970. In the 1970s and 1980s, its score was typically around 6.5 out of 10 and its rank around 20th. Ireland entered the top 10 in 1995 and has remained there except for a couple of years following the financial crisis of 2008. Since 2010, Ireland has regained its momentum in both economic freedom and economic growth, as the authors show. It re-entered the top 10 in economic freedom in 2012.

Chapter 6: Economic Freedom in the United States, 1980 to the Present
by Dean Stansel and Meg Tuszynski
While the reduction in economic freedom of the United States has been moderate relative to that of Venezuela, nonetheless the decline has been substantial. The United States’ high-water mark in economic freedom came in 2000 with a score of 8.65 and a rank of second place. The decline has been steady since and, in 2010, the United States fell out of the top 10. The recent economic performance of the United States has been sub-par and its recovery from the Great Recession has been the slowest since World War II.
 

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