INDEX OF ECONOMIC FREEDOM - The Heritage Foundation

HIGHLIGHTS OF THE

2018

INDEX OF

ECONOMIC FREEDOM

Terry Miller Anthony B. Kim James M. Roberts

with Patrick Tyrrell & Tori K. Whiting

RANKING THE WORLD BY ECONOMIC FREEDOM

Rank Country

Overall Score Rank Country

Overall Score Rank Country

Overall Score

Hong Kong Singapore New Zealand Switzerland Australia Ireland Estonia United Kingdom Canada United Arab Emirates Iceland Denmark Taiwan Luxembourg Sweden Georgia Netherlands United States Lithuania Chile Mauritius Malaysia Norway Czech Republic Germany Finland South Korea Latvia Qatar Japan Israel Austria Macedonia Macau Botswana Vanuatu Romania Uruguay Rwanda Jamaica Kazakhstan Colombia Peru Armenia Poland Malta Bulgaria Cyprus St Vincent and the Grenadines Bahrain Saint Lucia Belgium Thailand Panama Hungary Kosovo Costa Rica Turkey Slovak Republic Spain Philippines Jordan Mexico

Slovenia Albania Dominica Azerbaijan Montenegro Indonesia Brunei France Portugal Guatemala Bahamas El Salvador Tonga South Africa Kyrgyz Republic Italy Serbia Kuwait Paraguay Uganda Fiji C?te d Ivoire Morocco Bhutan Seychelles Dominican Republic Samoa Bosnia and Herzegovina Croatia Oman Honduras Burkina Faso Cabo Verde Tanzania Saudi Arabia Tunisia Nicaragua Cambodia Guyana Namibia Nigeria Moldova Tajikistan Russia Belarus Gabon China Sri Lanka Trinidad and Tobago Mali Solomon Islands Greece Belize Barbados Guinea-Bissau Madagascar Benin Comoros Ghana Swaziland Haiti Mongolia Senegal Papua New Guinea

Bangladesh Kenya India Pakistan Zambia Nepal Mauritania Burma Lesotho S?o Tom? and Pr?ncipe Laos Egypt Lebanon Vietnam Ethiopia Micronesia Argentina Gambia Guinea Congo Dem Rep Malawi Cameroon Ukraine Sierra Leone Uzbekistan Brazil Afghanistan Maldives Iran Burundi Liberia Kiribati Niger Sudan Chad Central African Republic Angola Ecuador Suriname Timor-Leste Togo Turkmenistan Mozambique Djibouti Algeria Bolivia Zimbabwe Equatorial Guinea Eritrea Congo Rep Cuba Venezuela North Korea

Economic Freedom Scores

80?100 Free 70?79.9 Mostly Free 60?69.9 Moderately Free 50?59.9 Mostly Unfree 0?49.9 Repressed

Hong Kong Singapore

SIX "FREE" NATIONS

New Switzerland Australia Zealand

Ireland

REGIONAL LEADERS

Hong Kong United Arab Emirates

Mauritius

Switzerland

Canada

ASIA-PACIFIC MIDDLE EAST/ SUB-SAHARAN

NORTH AFRICA

AFRICA

EUROPE

AMERICAS

ECONOMIC FREEDOM SUPPORTS DEMOCRATIC GOVERNANCE

Democracy Index Score

Each circle represents a nation

in the Index of Economic Freedom

Trend

Correlation: 0.619

Overall Score in the 2018 Index of Economic Freedom

ECONOMIC FREEDOM ENCOURAGES ECONOMIC GROWTH

Average Annual Growth of GDP per Capita (Purchasing Power Parity)

5?Year

10?Year

3.57

20?Year

2.84

1.94 1.27 0.97

2.59 2.50 1.84 1.22

2.50 2.37 2.14

1st 2nd 3rd 4th

1st 2nd 3rd 4th

1st 2nd 3rd 4th

Increase in Economic Freedom, by Quartile

SOURCES: 2018 Index of Economic Freedom, International Monetary Fund, and The Economist Intelligence Unit.

ECONOMIC FREEDOM UNLOCKS GROWTH AND PROSPERITY

F indings in the 2018 Index of Economic Freedom confirm yet again the proven power of economic freedom in boosting growth and increasing prosperity. As successive editions of the Index have documented since 1995, the positive connection between economic freedom and longterm improvements in economic performance and overall development is unambiguous and robust. Citizens of countries with greater economic freedom live longer, have higher incomes, and benefit from elevated standards of living. They enjoy generally better health and are better educated, with access to higher-quality educational institutions. Those citizens and their governments also generate the resources necessary for better environmental stewardship of both public and private lands. Their collective wealth, invested through highly developed capital markets, funds entrepreneurial and innovative advances in science and technology.

More than 100 countries--greater than half of the number of countries measured--achieved higher levels of economic freedom in the 2018 Index than they achieved in the previous year. These countries typically recorded higher rates of gross domestic product (GDP) growth than did countries

where overall Index scores declined. Thirty-eight countries achieved their highest-ever scores in the 2018 Index. The average score for all 180 countries graded in the Index reached 61.1, an all-time high.

MORE ECONOMIC FREEDOM, GREATER HUMAN DEVELOPMENT

Human Development Index Score, by Index of Economic Freedom Category

FREE 0.926

MOSTLY FREE

0.875

MODERATELY FREE

0.742

MOSTLY UNFREE

0.605

REPRESSED 0.567

SOURCES: 2018 Index of Economic Freedom and U.N. Human Development Programme, Human Development Report 2016.



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2018 Index of Economic Freedom HIGHLIGHTS

AS ECONOMIC FREEDOM RISES, THE GLOBAL ECONOMY EXPANDS AND POVERTY FALLS

Average Score in the Index Global GDP, in Trillions

of Economic Freedom

of 2010 U.S. Dollars

Percentage of Global Population in Poverty

61.1

$77.3

10.7%

SOURCES: 2018 Index of Economic Freedom and The World Bank.



The divergent success of countries with various levels of economic freedom implies important policy conclusions:

? Countries that practice some variety of free-market capitalism and are open to global trade, investment, and financial markets do better economically than those that are protectionist or that shun linkages with others.

? Countries that encourage and protect private ownership of property through honest and even-handed judicial systems encourage more entrepreneurial activity than do countries that require or practice collective or government ownership or control of economic resources.

? Governments that impose heavy taxation or that incur excessive debt to fund high levels of government spending crowd out private economic activity and discourage job-creating investment.

? A consistently applied regulatory scheme that encourages competition and dispersed decision-making, innovation, and economic efficiency promotes gains in productivity and better allocation of resources than are achieved by systems of central planning.

Economic Freedom Alleviates Poverty and Promotes Overall Human Development

Policies that promote economic freedom, whether through improvements in the rule of law, the promotion of efficiency and openness, or suitable restraints on the size and reach of government, create an environment in which people are encouraged and trusted to develop practical solutions to the economic and social challenges that confront them on a daily basis.

The free-market system based on these principles of economic freedom has been fueling unprecedented economic growth around the world.

The Heritage Foundation | Index

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ECONOMIC FREEDOM PROMOTES INNOVATION AND ENVIRONMENTAL PROTECTION

Global Innovation Index Score

Correlation: 0.767

Trend

Each circle represents a nation

in the Index of Economic Freedom

Overall Score in the 2018 Index of Economic Freedom

Environmental Performance Index Score

56.6

58.8

73.2

81.4

87.2

REPRESSED

MOSTLY UNFREE

MODERATELY MOSTLY FREE FREE

FREE

Category in the 2018 Index of Economic Freedom

SOURCES: 2018 Index of Economic Freedom, The Global Innovation Index 2017, and 2016 Environmental Performance Index.



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2018 Index of Economic Freedom HIGHLIGHTS

ECONOMIC FREEDOM SPURS SOCIAL PROGRESS

Social Progress Index Score Correlation: 0.746

Trend

Each circle represents a nation

in the Index of Economic Freedom

Overall Score in the 2018 Index of Economic Freedom

SOURCES: 2018 Index of Economic Freedom and 2017 Social Progress Index.



As the global economy has moved toward greater economic freedom over the past two decades, real-world GDP has increased by more than 75 percent, and the percentage of the global population that lives in poverty has shrunk dramatically from 29.3 percent in 1996 to 10.7 percent in 2013 according to the World Bank--a huge accomplishment that has raised living standards for hundreds of millions of people.

Beyond the materialistic and monetary metrics of this increase in prosperity lie many important achievements

for these societies: improvements in health, literacy, sanitation, personal security and safety, and even the societal cohesiveness and resilience that result from greater and more widespread individual well-being.

Economic Freedom Boosts Innovation and Ensures a Cleaner Environment

The link between economic freedom and higher levels of innovation enables countries to respond to developmental challenges by spurring

The Heritage Foundation | Index

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THE 12 ECONOMIC FREEDOMS: A GLOBAL LOOK

RULE OF LAW

GOVERNMENT SIZE

Property

Judicial Government

Rights E ectiveness Integrity

A number of governments made progress in enhancing judicial e ectiveness by increasing institutional independence and accountability. Global scores for property rights and government integrity registered little, if any, change. The low average scores for these indicators reflect a poor overall level of protection for private property as well as the systemic corruption of government institutions by such practices as bribery, cronyism, and graft.

REGULATORY EFFICIENCY

Tax Burden

Government Spending

Fiscal Health

The average top individual income tax rate for all countries in the world is about 28.5 percent, and the average top corporate tax rate is 24.1 percent. The average overall tax burden as a percentage of GDP corresponds to approximately 23.6 percent. The average level of government spending as a percentage of GDP is equal to 32.9 percent. The average level of gross public debt for countries covered in the Index is equivalent to about 55.6 percent of GDP.

OPEN MARKETS

Business Freedom

Labor Freedom

Monetary Freedom

Many economies have continued to streamline and modernize their business frameworks, although the overall pace of reform in developed countries has generally lagged behind the pace in developing countries. For the world as a whole, a movement toward higher minimum wages continues with a risk of increasing poverty and dependence on government. Monetary freedom is stable, reflecting subdued inflationary pressures worldwide.

Trade Freedom

Investment Freedom

Financial Freedom

Global trade freedom is stuck in neutral with its score virtually unchanged from last year. Investment freedom advanced in the 2018 Index, but progress was uneven, and investment policy measures in many countries remain geared toward sectoral investment promotion rather than general market openness. Despite some progress in stability, financial institutions in many countries continue to face uncertain regulatory environments.

SOURCE: 2018 Index of Economic Freedom.



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2018 Index of Economic Freedom HIGHLIGHTS

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