Index of Economic Freedom

Frequently Asked Questions

Q.1. What is economic freedom?

The highest form of economic freedom provides an absolute right of property ownership, fully realized freedoms of movement for labor, capital, and goods, and an absolute absence of coercion or constraint of economic liberty beyond the extent necessary for citizens to protect and maintain liberty itself. In other words, individuals are free to work, produce, consume, and invest in any way they please, and that freedom is both protected by the state and unconstrained by the state. (See Chapter 4, the Methodology.)

Q.2. How do you measure economic freedom?

We measure 10 specific factors, and average them equally into a total score. Each one of the 10 freedoms is graded using a scale from 0 to 100, where 100 represents the maximum freedom. A score of 100 signifies an economic environment or set of policies that is most conducive to economic freedom. The ten component freedoms are:
Q.3. How do you weight the factors of economic freedom to grade countries?

In the Index of Economic Freedom, all 10 factors are equally weighted in order not to bias the overall score toward any one factor or policy direction.

Q.4. What is your period of study?

For the 2008 Index of Economic Freedom, the authors generally examined data for the period covering the second half of 2006 through the first half of 2007. To the extent possible, the information considered for each factor was current as of June 30, 2007. It is important to understand, however, that some factors are based on historical information. For example, the monetary policy factor is a 3-year weighted average rate of inflation from January 1, 2004, to December 31, 2006. Other factors are current for the year in which the Index is published. For example, the taxation variable for this Index considers tax rates that apply to the taxable year 2007.

Q.5. Can I access the data online?

The Heritage Foundation’s website offers an interactive edition of the Index rankings and scores EXPLORE. This feature allows anybody to rank countries by a specific factor (e.g. how well does my country score solely in terms of its trade policy?); it also allows users to see how economic freedom changed in a particular country or particular region since 1995, when the Index started.

Q.6. Have there been any changes in the Index methodology since its first edition?

It is important to have the best measure of freedom possible, and new cross-country data, that was never available before, were included for labor freedom and business freedom. We also dispatched with the practice of using grading categories in favor of equations so that the scoring is more objective and detailed than ever before. As part of a recurring review process, every one of the 10 factors of freedom has been revised, and in fact the data were updated all the way back to 1995 wherever possible. That means that the 2008 scores can be effectively compared to previous years using this fully revised data set, but not comparing the 2008 book to older books. The methodology revision was overseen by a new academic advisory board in an unbiased way, and did not consider which countries would be affected. The new methodology, like those before, provides the best possible measure of economic freedom at the present time.

Q.7. How does economic freedom help an economy grow?
Studies in previous editions of the Index confirm the tangible benefits of living in freer societies. Not only is a higher level of economic freedom clearly associated with a higher level of per capita gross domestic product (GDP), but GDP growth rates also increase as a country’s economic freedom score improves.