NZ retains third ranking for economic freedom

New Zealand has again been ranked third in the world in the annual Economic Freedom of the World report. Hong Kong continues its reign as the most economically free region on the globe, followed by Singapore.

The Canada-based Fraser Institute compiles the listings in cooperation with independent institutes in 75 nations and territories.

Zimbabwe once again has the lowest level of economic freedom among the 141 jurisdictions included in the study, followed by Angola and Myanmar.

The report, available in full here, uses 42 different measures to create an index based on personal choice, voluntary exchange, freedom to compete, and security of private property.

Economic freedom is measured in five different areas: (1) size of government; (2) legal structure and security of property rights; (3) access to sound money; (4) freedom to trade internationally; and (5) regulation of credit, labor and business.

Research shows that individuals living in countries with high levels of economic freedom enjoy higher levels of prosperity, greater individual freedoms, and longer life spans.

This year’s report also contains new research showing the impact of economic freedom on poverty reduction.

James Gwartney professor of economics at Florida State University, and Seth Norton, professor of business at Wheaton College, note that since economic growth is the driving force underlying reductions in poverty, countries such as Chile, Peru, Thailand, Malaysia, South Korea, China, and India have seen their poverty rates decrease in recent decades because these countries have achieved rapid economic growth.

“If a country adopts reforms supportive of economic freedom, will the wellbeing of the poor improve? Theory indicates that the answer to this question is ‘yes,’ but substantial reductions in poverty are likely to take some time,” Norton said.

“Economic freedom is one of the key building blocks of the most prosperous nations around the world,” institute director of trade and globalisation studies Fred McMahon said.

“Countries with high levels of economic freedom are those in which people enjoy high standards of living and personal freedoms. Countries at the bottom of the index face the opposite situation; their citizens are often mired in poverty, are governed by totalitarian regimes and have few if any, individual rights or freedoms,”

Several countries have substantially increased their ratings and become relatively free during the past decade. Estonia increased its rating by 2.27 points since 1995 and is now one of the freest economies in the world.

Lithuania and Latvia have increased their ratings by at least two points since 1995 and their 2006 ratings are greater than 7.0. The ratings of Cyprus, Hungary, Kuwait, and South Korea have also improved substantially and their ratings are now 7.3 or more.

Two African economies, Zambia and Ghana, have become substantially freer with ratings of 7.13 and 7.04, respectively.

Top 10 countries

Hong Kong 8.94 (out of 10)
Singapore 8.57
New Zealand 8.28
Switzerland 8.2
UK 8.07),
Chile 8.06
Canada 8.05
Australia 8.04
USA 8.04
Ireland 7.92

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1 Comment & Question

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What's most interesting to note is how our rank-ordering changed on a lot of the sub-indices that go into making up the overall index.

From 1995 to 2006, we dropped from 18th to 53rd on "size of government:, 3rd to 9th on "legal structure and security of property rights"; 4th to 30th on "access to sound money" and 2nd to 11th on "regulation of credit, labor and business".

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