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Index of Economic Freedom. 2010 Index Presentation Jakarta, Indonesia June 25, 2010 James M. Roberts Research Fellow for Economic Freedom and Growth Center for International Trade and Economics The Heritage Foundation. Index of Economic Freedom. - PowerPoint PPT Presentation
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Index of Economic Freedom
2010 Index Presentation
Jakarta, Indonesia
June 25, 2010
James M. RobertsResearch Fellow for
Economic Freedom and Growth
Center for International Trade and EconomicsThe Heritage Foundation
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Index of Economic Freedom
1995 to 2010: 16 Years of the Index of Economic Freedom
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Timeless Principles of Economic Freedom• Fundamental right of every human to control his or her
own labor and property• Individuals should be free to work, produce, consume,
and invest• That freedom should be both protected by the state and
unconstrained by the state• Governments should allow labor, capital and goods to
move freely, and refrain from coercion or constraint of liberty beyond the extent necessary to protect and maintain liberty itself
• Free Markets—Open Competition
Index of Economic Freedom
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1. Business Freedom2. Trade Freedom3. Fiscal Freedom4. Government Spending5. Monetary Freedom6. Investment Freedom7. Financial Freedom8. Property Rights9. Freedom from Corruption10. Labor Freedom
Measuring Economic Freedom
Index of Economic Freedom
•Each freedom is measured between 0 and 100.•Overall economic freedom score is a simple average of the 10 freedoms (equal weighting).
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1. Business Freedom - World Bank Doing Business2. Trade Freedom - World Bank & WTO (Trade Policy Review)3. Fiscal Freedom - OECD, IMF, Ernst and Young, & Deloitte4. Government Spending - OECD, IMF, & World Bank5. Monetary Freedom - IMF, EIU, & central banks6. Investment Freedom - EIU, IMF, World Bank,& DOC7. Financial Freedom - EIU, IMF, World Bank, & DOC8. Property Rights - USDOC, USDOS, IMF, & EIU9. Freedom from Corruption - Transparency International10. Labor Freedom - World Bank Doing Business
Major Information Sources
Index of Economic Freedom
•Also used to calculate scores: information from various governmental websites; articles from major international/domestic newspapers; and specific country reports from other international organizations such as the Asian Development Bank, UN Commission for Trade and Development (UNCTAD), African Development Bank, and Inter-American Development Bank.
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Ten Economic Freedoms: Global Averages
59.4
64.6
74.2
75.4
65
70.6
48.9
48.6
43.8
40.5
62.1
0 50 100
Overall Economic Freedom
Business Freedom
Trade Freedom
Fiscal Freedom
Gov't Spending
Monetary Freedom
Investment Freedom
Financial Freedom
Property Rights
Freedom from Corruption
Labor Freedom
Index of Economic Freedom
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Which Countries Enjoy More Economic Freedom?
Top 10“Free”
1. Hong Kong2. Singapore3. Australia4. New Zealand5. Ireland 6. Switzerland7. Canada
“Mostly Free”8. United States9. Denmark10. Chile
Bottom 10
179. North Korea178. Zimbabwe177. Cuba176. Eritrea175. Burma174. Venezuela173. Libya172. Dem. Rep. of
Congo171. Turkmenistan170. Solomon Island
Index of Economic Freedom
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Index of Economic Freedom
Asia-Pacific’s Performance in the 2010 Index
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Index of Economic Freedom
Economic Freedom by Region
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Index of Economic Freedom
Indonesia's Economic Freedom
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Indonesia’s Performance: Further Reforms Needed
• Indonesia’s economic freedom score is 55.5, making its economy the 114th freest in the 2010 Index. Its score has improved by 2.1 points since last year, reflecting improvements in business freedom, fiscal freedom, and freedom from corruption.
• Indonesia is ranked 21st out of 41 countries in the Asia–Pacific region, and its overall score is below the world average.
• Recent Improvements:– Improved entrepreneurial environment– Enhanced regional competitiveness– More vibrant private sector through decentralization– Management of public finance has improved; tariff barriers lowered.
• Lingering institutional impediments—more reforms needed: – Starting a business takes more than twice as long as the world average– Onerous regulations– Investment freedom curtailed by government interference– Pervasive corruption—weak, nontransparent judicial institutions
Index of Economic Freedom
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Index of Economic Freedom
Malaysia's Economic Freedom
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Index of Economic Freedom
Cambodia's Economic Freedom
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Index of Economic Freedom
Vietnam's Economic Freedom
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Index of Economic Freedom
Singapore’s Economic Freedom
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Global Recovery: Keynesianism Is Not The Answer
• Failure of Government Spending/Fiscal Stimulus to sustain recovery
• Collapse of welfare state model
Index of Economic Freedom
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How the 20 Largest Economies Performed
Index of Economic Freedom
-2.7-2.5-2.2-2.0-2.0-1.1-0.6-0.5-0.5-0.1
00.10.60.91.31.82.12.22.52.9
U.S
.
UK
Chi
na
Net
herla
nds
Bel
gium
Bra
zil
Indi
a
Rus
sia
Spai
n
Can
ada
Aus
tral
ia
Japa
n
Ger
man
y
Fran
ce
Italy
Sout
h K
orea
Indo
nesi
a
Turk
ey
Mex
ico
Pola
nd
Score changes from the 2009 Index to the 2010 Index
Source: Terry Miller and Kim R. Holmes, 2010 Index of Economic Freedom (Washington, D.C.: The Heritage Foundation and Dow Jones & Company, Inc., 2010), at www.heritage.org/index.
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Higher Government Spending? Lower Growth …
Index of Economic Freedom
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Fiscal Stimulus – No Impact on Growth
Index of Economic Freedom
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Economic Freedom Matters
• Higher per Capita Economic Growth • Poverty Reduction• Improved Good Governance• Enhanced Human Development• Increased Investment • Better Environmental Quality
Index of Economic Freedom
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Index of Economic Freedom
Economic Freedom is Key to Prosperity
Sources: Terry Miller and Kim R. Holmes, 2010 Index of Economic Freedom (Washington, D.C.: The Heritage Foundation and Dow Jones & Company, Inc., 2010), at www.heritage.org/index; World Bank, World Development Indicator Online, www.worldbank.org/data
Correlation: 0.67R2 = 0.45
$-
$15,000
$30,000
$45,000
$60,000
20 40 60 80 100
Economic Freedom
GDP per Capita (in constant 2000 US$)
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Index of Economic Freedom
The Greater Economic Freedom, The Higher Standard of Living
Sources: Terry Miller and Kim R. Holmes, 2010 Index of Economic Freedom (Washington, D.C.: The Heritage Foundation and Dow Jones & Company, Inc., 2010), at www.heritage.org/index; World Bank, World Development Indicator Online, www.worldbank.org/data
$28,091
$23,253
$6,819
$1,478 $1,796
$-
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
Free Mostly Free Moderately Free Mostly Unfree Repressed
Economic Freedom
GDP per Capita (in constant 2000 US$)
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Economic Freedom Promotes Good Governance
Sources: Terry Miller and Kim R. Holmes, 2010 Index of Economic Freedom (Washington, D.C.: The Heritage Foundation and Dow Jones & Company, Inc., 2010), at www.heritage.org/index; the Economist Intelligence Unit’s Index of Democracy, Country Forecasting Services, Economist Intelligence Unit, at http://graphics.eiu.com/PDF/Democracy%20Index%202008.pdf
Correlation: 0.67R2 = 0.45
0
3
6
9
12
20 40 60 80 100
Economic Freedom
Economist Intelligence Unit Democracy Index
Index of Economic Freedom
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Economic Freedom Reduces Poverty
Sources: Terry Miller and Kim R. Holmes, 2010 Index of Economic Freedom (Washington, D.C.: The Heritage Foundation and Dow Jones & Company, Inc., 2010), at www.heritage.org/index; Human Development Reports, United Nations Human Development Programme, at http://hdr.undp.org/en/reports/
Index of Economic Freedom
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Economic Freedom Promotes Human Development
Sources: Terry Miller and Kim R. Holmes, 2010 Index of Economic Freedom (Washington, D.C.: The Heritage Foundation and Dow Jones & Company, Inc., 2010), at www.heritage.org/index; Human Development Reports, United Nations Human Development Programme, at http://hdr.undp.org/en/statistics/
0.9570.906
0.819
0.620 0.630
0.0
0.3
0.5
0.8
1.0
Free Mostly Free Moderately Free Mostly Unfree Repressed
Economic Freedom
United Nation's Human Development Index
Correlation: 0.63R2 = 0.40
Index of Economic Freedom
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Index of Economic Freedom
Freedom of Press Promotes Economic Freedom
Sources: Terry Miller and Kim R. Holmes, 2010 Index of Economic Freedom (Washington, D.C.: The Heritage Foundation and Dow Jones & Company, Inc., 2010), at www.heritage.org/index; World Bank, 2008 Freedom of the Press Word Rating
Correlation: 0.63R2 = 0.39
0
20
40
60
80
100
121416181
Freedom of Press
Economic Freedom
Least Free Most Free
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Index of Economic Freedom
Economic Freedom Attracts Foreign Direct Investment
Sources: Terry Miller and Kim R. Holmes, 2010 Index of Economic Freedom (Washington, D.C.: The Heritage Foundation and Dow Jones & Company, Inc., 2010), at www.heritage.org/index; World Bank, 2008 Freedom of the Press Word Rating
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Economic Freedom is Key to Overall Well-Being
Index of Economic Freedom
Correlation: 0.79 R2 = 0.62
1
21
41
61
81
101
160119178 Index of Economic Freedom Rank
Prosperity Index Rank
Sources: Terry Miller and Kim R. Holmes, 2010 Index of Economic Freedom (Washington, D.C.: The Heritage Foundation and Dow Jones & Company, Inc., 2010), at www.heritage.org/index; 2009 Legatum Prosperity Index: An Inquiry into Global Wealth and Wellbeing, at http://www.prosperity.com/downloads/2009LegatumProsperityIndexReport.pdf.
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How to Achieve Better Environmental Protection?Not by Meetings after Meetings…
Index of Economic Freedom
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Economic Freedom Promotes a Clean Environment
Sources: Terry Miller and Kim R. Holmes, 2010 Index of Economic Freedom (Washington, D.C.: The Heritage Foundation and Dow Jones & Company, Inc., 2010), at www.heritage.org/index; Daniel C. Esty, M. A. Levy, C. H. Kim, A. de Sherbinin, T. Srebotnjak, and V. Mara, 2008 Environmental Performance Index (New Haven: Yale Center for Environmental Law and Policy, 2008), at http://epi.yale.edu/Framework.
Correlation: 0.56
86.783.477.3
64.963.8
FreeMostly FreeModerately FreeMostly UnfreeRepressed
Economic Freedom
Average Score of the Environmental Performance Index
Index of Economic Freedom
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Three Informative Chapters of the 2010 Index
• Trading for Prosperity by the Honorable Elaine Chao
• Economic Freedom and Crisis Performance in Asia by Derek Scissors, Ph.D.
• Access to Information: Vital for Efficient Markets & Economic Reform
by James Roberts
Index of Economic Freedom
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Index of Economic Freedom
For the first time ever, the U.S. has dropped out of the free category and fallen to mostly free in the 2010 Index of Economic Freedom. Of the world’s 20 largest economies, the U.S. has suffered the largest drop in economic freedom. It’s clear why our economy is failing to generate jobs. To see other highlights from the 2010 Index of Economic Freedom click here.
For More Information, Please Visit www.heritage.org/index
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Thank You!
Index of Economic Freedom
Q and A Session