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Economic Freedom of the World: Economic Freedom of the World: Annual Report 2003Annual Report 2003
Fraser InstituteFraser Institute
Policy BriefingPolicy Briefing
Toronto Toronto
July 8July 8
20032003
2
THANK YOU FOR COMING!THANK YOU FOR COMING!
The key to changing policy in the world is The key to changing policy in the world is changing the climate of opinion about what changing the climate of opinion about what works and what does not work in encouraging works and what does not work in encouraging world developmentworld development
The key to changing the climate of opinion is The key to changing the climate of opinion is providing the widest possible audience with providing the widest possible audience with good information about the causes of good information about the causes of development and under-developmentdevelopment and under-development
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Economic Freedom of the World Economic Freedom of the World ProjectProject
Objective: find a way to measure economic Objective: find a way to measure economic freedom and explore the connection freedom and explore the connection between it and other variables between it and other variables
18 year project 18 year project Led by Professor Milton Friedman, Rose Led by Professor Milton Friedman, Rose
Friedman and Michael WalkerFriedman and Michael Walker Involved 100 of the world’s top scholarsInvolved 100 of the world’s top scholars
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What is The Economic Freedom What is The Economic Freedom of the World Index?of the World Index?
An annual compilation of data representing An annual compilation of data representing factors which make a country economically freefactors which make a country economically free
Authors: James Gwartney and Robert LawsonAuthors: James Gwartney and Robert Lawson A compendium of 38 government policies A compendium of 38 government policies
affecting economic freedom based on objective affecting economic freedom based on objective data or independent surveysdata or independent surveys
A ranking of 123 countries representing 91% of A ranking of 123 countries representing 91% of the world’s population according to the extent to the world’s population according to the extent to which they permit their citizens to be which they permit their citizens to be economically freeeconomically free
Now a collaboration of Institutes in 59 different Now a collaboration of Institutes in 59 different countriescountries
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What is Economic FreedomWhat is Economic Freedom
Individuals have economic freedom when Individuals have economic freedom when property they acquire without the use of force, property they acquire without the use of force, fraud, or theft is protected from physical fraud, or theft is protected from physical invasions by others and they are free to use, invasions by others and they are free to use, exchange, or give their property as long as exchange, or give their property as long as their actions do not violate the identical rights their actions do not violate the identical rights of others. An index of economic freedom of others. An index of economic freedom should measure the extent to which rightly should measure the extent to which rightly acquired property is protected and individuals acquired property is protected and individuals are engaged in voluntary transactions.are engaged in voluntary transactions.
James Gwartney et al. 1996James Gwartney et al. 1996
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Components of The Economic Components of The Economic Freedom of the World Index Freedom of the World Index
Size of government and taxationSize of government and taxation Public versus private ownershipPublic versus private ownership Private property and the rule of lawPrivate property and the rule of law Trade regulation and tariffsTrade regulation and tariffs Foreign exchange and inflation Foreign exchange and inflation Controls on asset sales to foreignersControls on asset sales to foreigners Based entirely on objective or third party data Based entirely on objective or third party data
from 123 countriesfrom 123 countries
Talk about making a difference …Talk about making a difference …
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African Research Center for Public Policy and African Research Center for Public Policy and Market Process, KenyaMarket Process, Kenya
Albanian Center for Economic Research (ACER), Albanian Center for Economic Research (ACER), AlbaniaAlbania
Association for Liberal Thinking, Turkey Association for Liberal Thinking, Turkey
Association pour la Liberté Economique et le Progrès Association pour la Liberté Economique et le Progrès Social (ALEPS), FranceSocial (ALEPS), France
Cato Institute, United States of America Cato Institute, United States of America
Center for the Dissemination of Economic Knowledge Center for the Dissemination of Economic Knowledge (CEDICE), Venezuela (CEDICE), Venezuela
Center for Free Enterprise, Korea Center for Free Enterprise, Korea
Center for Policy Research, Sri Lanka Center for Policy Research, Sri Lanka
The Center for Research and Communication, The Center for Research and Communication, PhilippinesPhilippines
Centre for Civil Society, India Centre for Civil Society, India
Centre for the New Europe, Belgium Centre for the New Europe, Belgium
Centro Einaudi, ItalyCentro Einaudi, Italy
Centro de Investigación para el Desarrollo A.C., Centro de Investigación para el Desarrollo A.C., MexicoMexico
Centro de Investigación y Estudios Legales (CITEL), Centro de Investigación y Estudios Legales (CITEL), PeruPeru
Centro de Investigaciones Económicas Nacionales, Centro de Investigaciones Económicas Nacionales, GuatemalaGuatemala
Centrum im. Adama Smitha, Poland Centrum im. Adama Smitha, Poland
The Estonian Institute for Open Society Research, The Estonian Institute for Open Society Research, EstoniaEstonia
The F.A. Hayek Foundation, Slovak Republic The F.A. Hayek Foundation, Slovak Republic
The Fraser Institute, Canada The Fraser Institute, Canada
Free Market Centre, YugoslaviaFree Market Centre, Yugoslavia
The Free Market Foundation of Southern Africa, The Free Market Foundation of Southern Africa, South AfricaSouth Africa
Fundación DL, Colombia Fundación DL, Colombia
Fundación Economía y Desarrollo, Inc., Dominican Fundación Economía y Desarrollo, Inc., Dominican RepublicRepublic
Fundación Libertad, ArgentinaFundación Libertad, Argentina
Fundación Libertad, Panamá Fundación Libertad, Panamá
Fundación Libertad, Democracia y Desarrollo, Fundación Libertad, Democracia y Desarrollo, BoliviaBolivia
Hong Kong Centre for Economic Research, Hong Hong Kong Centre for Economic Research, Hong KongKong
Institute for Advanced Strategic and Political Studies, Institute for Advanced Strategic and Political Studies, IsraelIsrael
Institute for Market Economics, Bulgaria Institute for Market Economics, Bulgaria
Institute of Business, Trinidad and TobagoInstitute of Business, Trinidad and Tobago
The Institute of Economic Affairs, Ghana The Institute of Economic Affairs, Ghana
The Institute of Economic Affairs, United KingdomThe Institute of Economic Affairs, United Kingdom
Institute of Economic Analysis, Russia Institute of Economic Analysis, Russia
Institute of Economic Studies, Iceland Institute of Economic Studies, Iceland
The Institute of Economics, Croatia The Institute of Economics, Croatia
Institute of Public Affairs, Australia Institute of Public Affairs, Australia
Institute of Public Policy Analysis, Nigeria Institute of Public Policy Analysis, Nigeria
Instituto Ecuatoriano de Economía Política, EcuadorInstituto Ecuatoriano de Economía Política, Ecuador
Instituto Liberal do Rio de Janeiro, Brazil Instituto Liberal do Rio de Janeiro, Brazil
Instituto Libertad y Desarrollo, ChileInstituto Libertad y Desarrollo, Chile
Instituto para la Libertad y el Análisis de Políticas, Instituto para la Libertad y el Análisis de Políticas, Costa RicaCosta Rica
Liberales Institut, Germany Liberales Institut, Germany
Liberales Institut, Switzerland Liberales Institut, Switzerland
Liberální Institut, Czech Republic Liberální Institut, Czech Republic
Lithuanian Free Market Institute, Lithuanian Free Market Institute, LithuaniaLithuania
Making Our Economy Right (MOER), Making Our Economy Right (MOER), BangladeshBangladesh
The Nassau Institute, Bahamas The Nassau Institute, Bahamas
The New Zealand Business The New Zealand Business Roundtable, New ZealandRoundtable, New Zealand
Open Republic Institute, Ireland Open Republic Institute, Ireland
Szazadveg Policy Research Center, Szazadveg Policy Research Center, Hungary Hungary
TIGRA®, AustriaTIGRA®, Austria
Timbro, SwedenTimbro, Sweden
The Ukrainian Center for The Ukrainian Center for Independent Political Research, Independent Political Research, UkraineUkraine
D’Letzeburger Land, D’Letzeburger Land, Luxembourg Luxembourg
The Institute for Development of Eco The Institute for Development of Eco nomics and Finance, Indonesianomics and Finance, Indonesia
Liberty Network (LINE), DenmarkLiberty Network (LINE), Denmark
Liberty Institute, RomaniaLiberty Institute, Romania
Bureau d’Analyse d’Ingenierie et de Bureau d’Analyse d’Ingenierie et de Logiciels (BAILO), Ivory CoastLogiciels (BAILO), Ivory Coast
Member Institutes ofEconomic Freedom of the World Network
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Sampling of Press CoverageEconomic Freedom of the World 2002
· · People’s Daily (China)People’s Daily (China)· · The BBC World ServiceThe BBC World Service· · Financial Times of London Financial Times of London · · CNNCNN· · The Daily Star, (Dhaka, Bangladesh)The Daily Star, (Dhaka, Bangladesh)· · Frankfurter Allgemeine Zeitung Frankfurter Allgemeine Zeitung · · Investor's Business Daily Investor's Business Daily · · The EconomistThe Economist· · Business WeekBusiness Week· · Agence France-Presse (4 articles)Agence France-Presse (4 articles)· · ITAR-TASSITAR-TASS· · NotimexNotimex· · DPA (German Press Agency)DPA (German Press Agency)· · Jiji PressJiji Press· · Sing Tao Daily (China)Sing Tao Daily (China)· · Kyodo NewsKyodo News· · XinhuaXinhua· · Japan Economic NewswireJapan Economic Newswire· · Inter Press ServiceInter Press Service· · Press Trust of IndiaPress Trust of India· · National Post, (Canada)National Post, (Canada)
· · Ottawa Citizen (Canada)Ottawa Citizen (Canada)· · Bloomberg TVBloomberg TV· · ReutersReuters· · South China Morning Post (2 articles)South China Morning Post (2 articles)· · New Zealand HeraldNew Zealand Herald· · Hindustan TimesHindustan Times· · CNN en Espanol CNN en Espanol · · White House Bulletin White House Bulletin · · Pravda Pravda · · Reforma (Mexico)Reforma (Mexico)· · El Diario (Chile)El Diario (Chile)· · Singapore Business TimesSingapore Business Times· · Komersant (Russia) Komersant (Russia) · · Vedomosti (Russia) Vedomosti (Russia) · · La Nacion (Costa Rica)La Nacion (Costa Rica)· · La Republica (Costa Rica)La Republica (Costa Rica)· · Corporate MexicoCorporate Mexico· · Asia PulseAsia Pulse· · Asia TimesAsia Times· · AsiaPort AsiaPort · · Daily News Asia Daily News Asia
· · T he Christian Science T he Christian Science MonitorMonitor
· · Radio Free Europe Radio Free Europe · · Radio Free AsiaRadio Free Asia· · SBS Broadcasting (Australia)SBS Broadcasting (Australia)· · Chinese Radio (US)Chinese Radio (US)· · El Comercio, EcuadorEl Comercio, Ecuador· · El Financiero, EcuadorEl Financiero, Ecuador· · Latin Trade, FloridaLatin Trade, Florida· · Economia, PortugalEconomia, Portugal· · Público, PortugalPúblico, Portugal· · United Press InternationalUnited Press International· · BNS, LithuaniaBNS, Lithuania· · Lietuvos Aidas, LithuaniaLietuvos Aidas, Lithuania· · Respublika, LithuaniaRespublika, Lithuania· · Lietuvos Televizija Lietuvos Televizija
(Lithuania)(Lithuania)· · Znad Wilii, PolandZnad Wilii, Poland· · Irish TimesIrish Times· · Globe and Mail (Canada)Globe and Mail (Canada)· · Times Banks & Exchanges Times Banks & Exchanges
(Russia) (Russia)
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Introducing the 2003 Economic Introducing the 2003 Economic Freedom of the World Index Freedom of the World Index ResultsResults
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The top ten and how they got The top ten and how they got therethere
0
10
20
30
40
50
60
1970 1975 1980 1985 1990 1995 2000 2001
Perc
entil
e R
anks
Hong Kong
Singapore
United States
New Zealand
United Kingdom
Canada
Australia
Ireland
Switzerland
Netherlands
Source: The Fraser Institute.Source: The Fraser Institute.
13
Countries with significant Countries with significant deterioration since 1970deterioration since 1970
1
21
41
61
81
1970 1975 1980 1985 1990 1995 2000 2001
Perc
entil
e R
anks
Venezuela
Cameroon
Mali
Malawi
Paraguay
Bulgaria
Niger
Iran
Barbados
Nepal
Source: The Fraser Institute.Source: The Fraser Institute.
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Why is Economic Freedom Why is Economic Freedom Important?Important?
Economic rights are fundamental rights in the Economic rights are fundamental rights in the sense that without them there can be no sense that without them there can be no political freedom or civil freedomspolitical freedom or civil freedoms
They are a prerequisite for growth and They are a prerequisite for growth and developmentdevelopment
They are a prerequisite for broader human They are a prerequisite for broader human developmentdevelopment
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The impact on economic growth The impact on economic growth and developmentand development
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Income (per person) of the Bottom Income (per person) of the Bottom TenTen
$0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000
MalawiCongo, Dem. R.Congo, Rep. OfGuinea-Bissau
Central Afr. Rep.Zimbabwe
EcuadorUkraine
RomaniaAlgeria
Sources: The Fraser Institute; The World Bank, World Development Indicators 2003Sources: The Fraser Institute; The World Bank, World Development Indicators 2003
(Online).(Online).
17
Income (per person) of the Top Income (per person) of the Top TenTen
$0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000
New ZealandSingapore
United KingdomAustralia
Hong KongCanadaIreland
NetherlandsSwitzerland
United States
Sources: The Fraser Institute; The World Bank, World Development Indicators 2003Sources: The Fraser Institute; The World Bank, World Development Indicators 2003
(Online).(Online).
18
Per Capita Income and Economic Per Capita Income and Economic Freedom QuintileFreedom Quintile
$0
$5,000
$10,000
$15,000
$20,000
$25,000
Gro
ss N
atio
nal
In
com
e P
er C
apit
a,
pp
p U
S$,
200
1
BottomQuintile
FourthQuintile
ThirdQuintile
SecondQuintile
Top Quintile
Least Free …….. Most FreeLeast Free …….. Most Free
Sources: The Fraser Institute; The World Bank, World Development Indicators Sources: The Fraser Institute; The World Bank, World Development Indicators 2003 (Online).2003 (Online).
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Growth in Real GDP Per Capita Growth in Real GDP Per Capita and Economic Freedom Quintileand Economic Freedom Quintile
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
GD
P P
er C
apit
a %
G
row
th, 1
992-
2001
BottomQuintile
FourthQuintile
ThirdQuintile
SecondQuintile
Top Quintile
Least Free ……………..….. Most FreeLeast Free ……………..….. Most FreeSources: The Fraser Institute; The World Bank, World Development Indicators 2003Sources: The Fraser Institute; The World Bank, World Development Indicators 2003
(Online).(Online).
Economic Freedom,Economic Freedom,the Poor, andthe Poor, andinequalityinequality
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Human Poverty Index and Human Poverty Index and Economic Freedom QuintileEconomic Freedom Quintile
0
5
10
15
20
25
30
35
Hu
ma
n P
ov
ert
y I
nd
ex
, 2
00
0
BottomQuintile
FourthQuintile
ThirdQuintile
SecondQuintile
Top Quintile
Least Free …………..…. Most FreeLeast Free …………..…. Most Free
Sources: The Fraser Institute; United Nations Development Programmme, Sources: The Fraser Institute; United Nations Development Programmme, Human Development Indicators 2002 (Online). Human Development Indicators 2002 (Online).
22
Income Inequality, 1997-2001Income Inequality, 1997-2001
0
10
20
30
40
50
60
Per
cen
t
BottomQuintile
FourthQuintile
Third Quintile SecondQuintile
Top Quintile
Poorest 20% 2nd 20% 3rd 20% 4th 20% Richest 20%
Least Free …….. Most Free Least Free …….. Most Free
Percent of income accruing to thePercent of income accruing to the
Sources: The Fraser Institute; The World Bank, World Development Indicators Sources: The Fraser Institute; The World Bank, World Development Indicators 20032003
(Online).(Online).
23
Per Capita Income of poorest 10% Per Capita Income of poorest 10% and Economic Freedomand Economic Freedom
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
BottomQuintile
FourthQuintile
ThirdQuintile
SecondQuintile
Top Quintile
2.0
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.8
2.9
Per CapitaIncome ofthe Poorest10%
IncomeShare of thePoorest 10%
Least Free …….. Most FreeLeast Free …….. Most Free
Sources: The Fraser Institute; The World Bank, World Development Indicators 2003Sources: The Fraser Institute; The World Bank, World Development Indicators 2003
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As the world’s eyes again turn to As the world’s eyes again turn to Africa …Africa …
Economic Freedom Making a Economic Freedom Making a DifferenceDifference
An Example…An Example…
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Economic Freedom in Botswana, Economic Freedom in Botswana, and Sub- Sahara Africa and Sub- Sahara Africa
3.5
4
4.5
5
5.5
6
6.5
7
7.5
1980 1985 1990 1995 2001
African average Botswana
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Average Per Capita GDP Average Per Capita GDP
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
$4,500
1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000
Botswana Sub-Saharan Africa
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Economic Freedom, Economic Freedom, Other Freedoms and Other Freedoms and DemocracyDemocracy
28
Economic Freedom Versus Economic Freedom Versus CorruptionCorruption
0
1
2
3
4
5
6
7
8
Co
rru
pti
on
Ra
tin
g
BottomQuintile
FourthQuintile
ThirdQuintile
SecondQuintile
Top Quintile
Least Free ………….. Most FreeLeast Free ………….. Most Free
Sources: The Fraser Institute; Transparency International, Corruption Sources: The Fraser Institute; Transparency International, Corruption Perceptions Index 2002 (Online).Perceptions Index 2002 (Online).
29
Political Stability and Economic Political Stability and Economic Freedom QuintileFreedom Quintile
0
2
4
6
8
10
Po
litic
al S
tab
ility
Bottom 20% 2nd Quintile 3rd Quintile 4th Quintile Top 20%
Least Free ………..… Most FreeLeast Free ………..… Most Free
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Economic and Political FreedomEconomic and Political Freedom
0
1
2
3
4
5
6
7
BottomQuintile
FourthQuintile
ThirdQuintile
SecondQuintile
TopQuintile
Political Rights,2001-02
Least Free …… Most FreeLeast Free …… Most Free
Sources: The Fraser Institute; Freedom House, Sources: The Fraser Institute; Freedom House, Freedom in the World Country Freedom in the World Country Ratings, 1972-73 to 2001-02Ratings, 1972-73 to 2001-02 (Online). (Online).
31
Economic and Civil FreedomEconomic and Civil Freedom
0
1
2
3
4
5
6
7
BottomQuintile
FourthQuintile
ThirdQuintile
SecondQuintile
TopQuintile
Civil Liberties,2001-02
Least Free …… Most FreeLeast Free …… Most Free
Sources: The Fraser Institute; Freedom House, Sources: The Fraser Institute; Freedom House, Freedom in the World Country Freedom in the World Country Ratings, 1972-73 to 2001-02Ratings, 1972-73 to 2001-02 (Online). (Online).
32
The impact of Economic Freedom on The impact of Economic Freedom on the UN’s Human Development Index the UN’s Human Development Index and other indicatorsand other indicatorsof well-beingof well-being
33
Human Development Index, 2000, Human Development Index, 2000, and Economic Freedom Quintilesand Economic Freedom Quintiles
0.0
0.2
0.4
0.6
0.8
1.0
Uni
ted
Nat
ions
H
uman
Dev
elop
men
t In
dex,
200
0
BottomQuintile
FourthQuintile
ThirdQuintile
SecondQuintile
Top Quintile
Least Free ……………. Most FreeLeast Free ……………. Most FreeSources: The Fraser Institute; United Nations Development Sources: The Fraser Institute; United Nations Development Programmme, Human Development Indicators 2002 (Online). Programmme, Human Development Indicators 2002 (Online).
34
Infant Mortality and Economic Infant Mortality and Economic Freedom QuintileFreedom Quintile
0
10
20
30
40
50
60
70
Per
1,0
00 l
ive
bir
ths,
20
01
BottomQuintile
FourthQuintile
ThirdQuintile
SecondQuintile
TopQuintile
Least Free ………..…. Most FreeLeast Free ………..…. Most Free Sources: The Fraser Institute; The World Bank, World Development Indicators 2003Sources: The Fraser Institute; The World Bank, World Development Indicators 2003
(Online).(Online).
35
Economic Freedom and Labor force, Economic Freedom and Labor force, children 10-14 (% of age group), 2001children 10-14 (% of age group), 2001
024
68
10
121416
18
Perc
en
t o
f C
hil
dre
n 1
0-1
4
in t
he L
ab
ou
r F
orc
e,
2001
BottomQuintile
FourthQuintile
ThirdQuintile
SecondQuintile
TopQuintile
Least Free ……………. Most FreeLeast Free ……………. Most Free
Sources: The Fraser Institute; The World Bank, World Development Indicators 2003Sources: The Fraser Institute; The World Bank, World Development Indicators 2003
(Online).(Online).
36
Access to Essential Drugs, 1999, Access to Essential Drugs, 1999, and Economic Freedom Quintiles and Economic Freedom Quintiles
0
20
40
60
80
100
% o
f p
op
ula
tio
n w
ith
ac
ce
ss
Bottom 20% 2nd Quintile 3rd Quintile 4th Quintile Top 20%
Least Free …………..Most FreeLeast Free …………..Most Free
Sources: The Fraser Institute; The World Bank, World Development Sources: The Fraser Institute; The World Bank, World Development Indicators 2002 (CD-ROM). Indicators 2002 (CD-ROM).
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% of Population Using Improved % of Population Using Improved Water Sources, 2001Water Sources, 2001
0
20
40
60
80
100
Pe
rce
nta
ge
of
Po
pu
lati
on
w
ith
Ac
ce
ss
BottomQuintile
FourthQuintile
ThirdQuintile
SecondQuintile
TopQuintile
Least Free …………….. Most FreeLeast Free …………….. Most Free
Sources: The Fraser Institute; The World Bank, World Development Indicators 2003Sources: The Fraser Institute; The World Bank, World Development Indicators 2003
(Online).(Online).
38
Life Expectancy at Birth, 2001, Life Expectancy at Birth, 2001, and Economic Freedom Quintilesand Economic Freedom Quintiles
01020304050607080
Year
s
BottomQuintile
FourthQuintile
ThirdQuintile
SecondQuintile
Top Quintile
Least Free ……………. Most FreeLeast Free ……………. Most FreeSources: The Fraser Institute; The World Bank, World Development Indicators 2003Sources: The Fraser Institute; The World Bank, World Development Indicators 2003
(Online).(Online).
39
ConclusionsConclusions
Economic Freedom spursEconomic Freedom spurs
Increased prosperity for allIncreased prosperity for all Poverty reductionPoverty reduction Other freedomsOther freedoms Quality of life improvementsQuality of life improvements
All this can be seen in today’s data All this can be seen in today’s data and lessons from historyand lessons from history
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