The results of the 2015 Index of Economic Freedom confirm that the significant rebound in world economic freedom reported in the 2014 Index was no fluke. While the growth in economic freedom has slowed over the past year, the global average economic freedom score has nonetheless reached its highest level ever.
This 21st edition of the Index analyzes economic policy developments in 186 countries and territories since the second half of 2013. Economies in six regions have been graded and ranked on 10 aspects of economic freedom that evaluate the rule of law, the intrusiveness and size of government, regulatory efficiency, and the openness of markets.
Highlights from the 2015 Index
- Despite the continuing challenges that confront the world economy, the global average economic freedom score has improved over the past year by one-tenth of a point, reaching a record 60.4 (on a 0-to-100 scale) in the 2015 Index. Although the rate of advancement has slowed in comparison to last year’s near record 0.7-point increase, the world average has now reached a level a full point higher than that recorded in the aftermath of the financial crisis and recession, thus regaining all of the ground that had been lost.
- On a worldwide basis, the increase in economic freedom was driven by improvements in trade freedom, monetary freedom, and freedom from corruption, for which global ratings have advanced by close to one point or more on average.
- Average scores for most other economic freedoms, including business freedom, property rights, labor freedom, and financial freedom, registered small declines. More troubling were declines in the Index measures related to assessing government size. With a score drop of 1.0 point, the control of government spending recorded the biggest deterioration, reflecting a continuation of countercyclical or interventionist stimulus policies in some countries.
- 101 countries, the majority of which are less developed or emerging economies, showed advances in economic freedom over the past year; 37 countries, including Taiwan, Lithuania, Georgia, Colombia, Israel, Cabo Verde, Montenegro, and Côte d’Ivoire, achieved their highest economic freedom scores ever in the 2015 Index.
- While five countries (Singapore, Finland, Mexico, Madagascar, and Suriname) recorded no score change, declines in economic freedom were registered in 72 countries in the 2015 Index; 11 countries, including Venezuela, Equatorial Guinea, Argentina, Bolivia, Algeria, Greece, and El Salvador, recorded their lowest economic freedom scores ever.
- Sub-Saharan Africa is home to six of the 10 biggest score improvements. São Tomé and Príncipe, Democratic Republic of Congo, Togo, Senegal, Burundi, and Zimbabwe all recorded score gains of two points or more. Five countries in Europe (Slovenia, Ukraine, Armenia, Greece, and Turkey) were among those registering the worst score declines.
- Average levels of economic freedom advanced in half of the six Index regions. Sub-Saharan Africa (led by São Tomé and Príncipe and Democratic Republic of Congo) and the Asia–Pacific region (led by Maldives and the Philippines) each showed an average score improvement of 0.3 point, and Middle East/North Africa countries (led by Israel and Morocco) gained 0.1 point on average. While average economic freedom for the South and Central America/Caribbean region stayed the same as last year, Europe and North America registered slight declines of 0.1 point and 0.2 point, respectively.
- Three northern European economies (Estonia, Lithuania, and Latvia—the so-called Baltic Tigers) are on the move toward greater economic freedom. Overcoming severe recessions following the global financial turmoil, these countries have maintained their openness to global markets and competition, further reformed their economies, and shrunk the size of their governments. Each has advanced economic freedom and moved up in the global rankings every year since 2012.
- The United States continues to be only the 12th-freest economy, seemingly stuck in the ranks of the “mostly free,” the second-tier economic freedom category into which the U.S. dropped in 2010. However, the downward spiral in U.S. economic freedom over the previous seven years has come to a halt. In the 2015 Index, the U.S. has recorded modest score gains in six of the 10 economic freedoms and an overall score increase of seven-tenths of a point. On the other hand, the U.S. score for business freedom has plunged below 90, the lowest level since 2006.
Countries with higher levels of economic freedom continue to outperform others in reducing poverty, achieving greater prosperity, and ensuring broader progress in many dimensions of social and human development.
- The intensity of poverty in countries whose economies are considered mostly free or moderately free is only about one-fourth the level found in countries that are rated less free.
- Despite varying degrees of economic freedom across the regions around the globe, the positive relationship between economic freedom and prosperity is unequivocally consistent within the regions: Per capita incomes are much higher in countries that are economically free.
- Not surprisingly, overall human development also thrives in an environment that is economically free. Economic freedom is about more than a business environment in which entrepreneurship and prosperity can flourish. Higher economic freedom induces greater overall human development in such key areas as life expectancy, literacy, education, and the standard of living.
- There is a robust relationship between improving economic freedom and achieving higher per capita economic growth. Whether long-term (20 years), medium-term (10 years), or short-term (five years), the relationship between changes in economic freedom and changes in economic growth is consistently positive. As economies gain economic freedom and thus achieve dynamic growth, individuals and companies are empowered to build businesses, create jobs, and generate greater innovation for their communities and societies.
The Global Economic
- Hong Kong has maintained its status as the world’s freest economy, a distinction that it has achieved for 21 consecutive years. However, the gap between that territory and Singapore, the second-freest economy, has almost vanished. Hong Kong’s economic freedom score declined by half a point, with an erosion of the rule of law reflecting an increased level of perceived corruption.
- Along with Hong Kong and Singapore, New Zealand, Australia, and Switzerland are the only economies considered “free” with economic freedom scores above 80 on the 0-to-100 Index grading scale. New Zealand moved up two slots and reclaimed third place in the rankings as a result of committed efforts to cut government spending. Canada remains the world’s sixth-freest economy for the fifth year in a row.
- Chile (seventh) and Mauritius (10th), two reform-minded developing economies, continue to rank among the world’s 10 freest economies. Both have demonstrated persistent commitment to the rule of law, limited government, regulatory efficiency, and open markets.
- Moving up three slots, Estonia has become the world’s eighth-freest economy. The small Baltic nation has rejoined the world’s 10 freest economies for the first time since 2007, overtaking Denmark (11th), Ireland (ninth), and Mauritius.
- The Index rankings just below the top 10 underwent considerable reshuffling. Taiwan and Lithuania, benefitting from uninterrupted score improvements since 2009, have recorded their highest economic freedom scores ever, jumping to 14th and 15th places, respectively, and surpassing Sweden, Finland, Germany, Luxembourg, the Netherlands, and Bahrain.
- The so-called BRICS economies (Brazil, Russia, India, China, and South Africa) showed little progress in economic freedom. Scores for India and Brazil actually declined. South Africa recorded a modest improvement to remain in the ranks of the “moderately free,” but the other BRICS countries continue to be considered “mostly unfree.”