Economic liberty stands as a forefront and foundational concept in political science. It means the capability of individuals and organizations to take part in economic activities with government interference being minimal.
Economic liberty makes people live much more happily when their nation provides better economic freedom. It could be to start their own business, trade with each other, or get into contracts. In a country where economic freedom is granted, its citizens experience an increase in prosperity. The Index of Economic Freedom measures exactly that and gives a ranking number to a country based on how good the economic freedom is.
The index of economic freedom report is based on the data extracted from 184 countries in the world. It analyses the countries in 4 policy categories that influence economic freedom: the law, nature and size of the government, efficiency of the regulation, etc. Analyzing the countries on 12 factors decides its score, making this economic factor one of the most broadly used in the world. Let us learn more about the Index of Economic Freedom:
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What is the index of economic freedom?
The Index of Economic Freedom is an impactful and extensive yardstick of economic freedom and market-related policies in countries around the globe. This particular index renders precious insights and acts as a commendable tool. It helps to compare the economic ecosystems of various nations, which possess the power to influence a country’s well-being and standard of living.
The index of economic freedom possesses a unique position as an impartial, reliable, and meticulously calculated tool for determining economic freedom both quantitatively and qualitatively.
The index uses a mix of quantitative and qualitative data to classify the countries on a scale of 0 to 100, with 100 being the highest degree of economic liberty. Every year, the Index of Economic Freedom publishes a report to determine which country possesses the most freedom. This freedom is regarding business, trade, investment, and property rights.
The Heritage Foundation is responsible for publishing this particular report. The Heritage Foundation, which partnered with The Wall Street Journal, is situated in Washington D.C. This conservative think tank gets about 71.1M visits to their websites. It is a major public policy research organization in the world.
Utilizing the economic freedom index, users can explore creative ways to use the index in science. A great analytical tool for analyzing the economics of 186 countries globally is considered.
Read more: The 5 countries with most economic freedom
Methodology of the Index of Economic Freedom
The index of economic freedom is curated carefully, and the way it measures government involvement and economic ecosystems based on this methodology is important to understand.
This index calculates the rank it assigns to a country by weighting equally and averaging the totality of sub-variables to generate the complete economic liberty score for each nation.
The methodology can be broken down into various categories:
- Data procurement: The process starts with the procurement of data from numerous sources, like international organizations, government reports, think tanks, etc. These sources are apt for distributing information on concepts such as government size, laws, property rights, and more;
- Selection of indicator: We use a set of key indicators to consider the basic elements of economic liberty. These indicators include investment liberty, trade freedom, property rights, economic health, and more;
- System of scoring: We assign a score to these indicators, representing the level of economic liberty in that geographical area. It measures from a scale of 1 to 100, with 100 indicating the highest level of economic liberty;
- Ranking: Based on their numerical score, the countries are then ranked. These rankings classify the countries into some groups termed mostly as “free,” mostly free,” “moderately free,” Mostly unfree, and “repressed.”
Key features of the index of economic freedom
The index of economic independence provides valuable insights into governments of nations that hinder countries from experiencing prosperity through restricted regulations and control. Here are the some of the key features of the index of economic freedom
- The index analyses the degree of economic liberty in the world’s countries;
- The ranking aspects of economic liberty are between 0 and 100, with 0 representing absolutely no economic freedom and 100 being the highest economic independence;
- The index covers 12 freedoms ranging from financial freedom to property rights;
- Healthier and more evolved societies, cleaner and less regulated environments, human well-being, business flourishment, etc., are associated with this ideology;
- The index uses 10 economic liberty components calculated from sub-variables and averaged to generate gross economic independence for every economy;
- Law, government size and regulation, openness of the market, property rights, tax rules, economic health, and overall business liberty are some of the components;
- As the index methodology sets zero government spending as the benchmark, underdeveloped nations might get unnaturally high scores.
Top 10 countries according to the Index of Economic Freedom
According to the 2023 Index of Economic Freedom, the Top 10 countries are here as follows:
- New Zealand