2018 Index of Economic Freedom

Regional Developments in Economic Freedom

Average levels of economic freedom vary widely among the five regions of the world. Europeans on average enjoy the highest levels of economic freedom with an average score of 68.8, far higher than the world average of 61.1. The Middle East/North Africa, Asia–Pacific, and Americas regions have average economic freedom scores near the world average at 61.5, 61.0, and 60.1, respectively, while the Sub-Saharan Africa region falls significantly short at only 54.4.

The benefits of economic freedom—greater income, wealth, better health, cleaner environments, and many more—are evident in every region, but there are substantial differences among the regions in terms of level of development and even economic culture that affect the relative importance of the various factors that go into an economic freedom score.

The 12 indicators that make up an economic freedom score are equally weighted in determining the rankings. For individual countries looking to improve their scores, however, a focus on the indicators in which they perform most poorly provides the greatest opportunity for major increases in economic freedom. A country that lags in fiscal health, for example, might want to prioritize reductions in fiscal deficits and debt. A country that lags in the rule of law could concentrate on addressing corruption, judicial effectiveness, and the protection of property rights. Such focus can bring significant immediate gains in economic freedom and corresponding improvements in economic growth and prosperity.

While there is diversity within every region, certain patterns have emerged that point to the relative importance of various factors in holding back or promoting economic freedom in each region. The countries of the Americas, for example, lag significantly in the rule of law and regulatory efficiency. Particularly for most of the Latin American countries in the region, a culture of corruption holds back foreign investment and job growth. And the typically poor quality of the regulatory environment stifles entrepreneurship. These, then, are the most important areas for reform in a typical country in the Americas.

In the Asia–Pacific region, it is market openness and particularly investment freedom and financial freedom that fall far below world standards on average. Action by populous countries like China and India to relax restrictions on foreign investment and open their banking systems to competition from around the world would improve the livelihoods of hundreds of millions of people. High-performing Asian economies like those of Hong Kong, Singapore, New Zealand, and Australia have shown the way.

It is in the area of government size that the European countries tend to lose points in their economic freedom scores. Burdensome levels of tax and extraordinarily high levels of government spending have led to unsustainable fiscal balances in many countries and have crowded out more productive private-sector activities.

The Middle East/North Africa region falls far behind others in fiscal health, with levels of government spending, particularly on consumer subsidies and income redistribution, far outpacing tax receipts in many countries. Problems related to the rule of law are notable throughout the region, as is a serious lack of investment freedom in many countries.

Sub-Saharan African countries trail world averages in almost every category of economic freedom. Particularly notable are the serious deficits in the property rights, judicial effectiveness, and government integrity scores, which are both cause and effect of the high levels of political instability and conflict throughout the region.

The following pages provide a summary snapshot of economic freedom in the various regions while highlighting significant developments in a few notable countries. A full description of the status of economic freedom in every country may be found in Chapter 4.

The 12 Economic Freedoms: A Global Look

Rule of Law

A number of governments made progress in enhancing judicial effectiveness 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.

Government Size

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.

Regulatory Efficiency

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.

Open Markets

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.

Heritage Media Contacts

  • Justin Posey
    • Communications Manager, Institute for Economic Freedom and Opportunity
    • work: 202.608.6175
    • cell: 202.230.6690
  • Jim Weidman
    • Director, Editorial Services
    • work: 202.608.6145

Heritage Research Contacts

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