Economic Freedom of the World: 2000 Annual Report

James Gwartney, Florida State University

Robert Lawson, Capital University

with Dexter Samida, Fraser Institute

Section 1: Changes in Economic Freedom, 1970-1997

Since 1980, economic freedom appears to have risen around the world.

Economic freedom leads to higher incomes, faster growth, and longer lives.

Chart 1: The Average Summary Rating, 1970-1997

6.3

5.45.3

5.45.6

6.3

6.6

5.0

5.5

6.0

6.5

7.0

1970 1975 1980 1985 1990 1995 1997

Chart 2: The Growth Rate in the 1990s of Countries That Improved the Most Since 1980.

2.9

5.85.0

4.2

5.9

2.7 3.1

5.0

1.9

6.8

0

2

4

6

8

New Z

ealan

d (+21

)

Irelan

d (+20

)

Argenti

na (+

55)

El Salv

ador

(+77

)

Bolivia

(+61

)

Peru (+

66)

Philipp

ines (

+25)

Mex

ico (+

28)

Mau

ritius

(+34

)

Trinida

d/Tob

ago (

+22)

Countries in the Top 40 That Improved by 20 or More Places Since 1980

(Ranking improvement in parentheses.)

Rea

l GD

P G

row

th R

ate,

199

0s

Chart 3: Economic Freedom and Income, 1997

$1,669$3,440

$6,630

$10,595

$18,108

$0

$5,000

$10,000

$15,000

$20,000

Bottom 4th 3rd 2nd Top

Economic Freedom Rating Quintiles

Chart 4: Economic Freedom and Economic Growth in the 1990s

-1.32

0.820.33

1.60

2.27

-2.00

-1.00

0.00

1.00

2.00

3.00

Bottom 4th 3rd 2nd Top

Economic Freedom Rating Quintiles

Chart 5: Economic Freedom and Life Expectancy, 1997

55.2

60.1

70.072.6

75.9

50.00

60.00

70.00

80.00

Bottom 4th 3rd 2nd Top

Economic Freedom Rating Quintiles

Section 2: Changes in the Size of Government, 1970-1997

Government consumption as a share of total consumption has been relatively constant over the last two decades.

Transfer payments have increased sharply. Top marginal tax rates have fallen since

1980.

Chart 6: Government Consumption and Transfers, 1975-1997

17.2

19.4 19.5 19.7 19.6 19.1 19.0

5.9

7.9 8.49.4 9.7 9.8

11.3

5.0

10.0

15.0

20.0

25.0

1970 1975 1980 1985 1990 1995 1997

Govt.Consumption as ashare of TotalConsumption

TransferPayments as ashare of GDP

Chart 7: The Average Top Marginal Tax Rate, 1975-1997

54.8

58.2 57.2

47.6

39.437.3

35

45

55

65

1975 1980 1985 1990 1995 1997

Section 3: Inflation Around the World, 1970-1997

The average rate of inflation rose during the 1970s, but has fallen since the mid-1980s.

Chart 8: The Percentage of Countries with Inflation Rates Less than 5% During Previous

Five Years, 1970-1997

65.7

5.09.4

18.4

37.9

28.933.3

0.0

20.0

40.0

60.0

80.0

1970 1975 1980 1985 1990 1995 1997

Chart 9: The Median Inflation Rate, 1970-1997

4.8

11.0

14.5

6.3

8.8 9.1

5.8

0

5

10

15

20

1970 1975 1980 1985 1990 1995 1997

Section 4: Access to Sound Money, 1970-1997

The percentage of countries allowing citizens to hold foreign currency bank accounts has increased.

Likewise, the percentage of countries with sizeable foreign exchange black markets has fallen.

Chart 10: The Percentage of Countries in Which Citizens Were Free to Hold Foreign

Currency Bank Accounts, 1970-1997

26.323.5

27.625.6

35.2

42.7

48.4

20

25

30

35

40

45

50

55

1970 1975 1980 1985 1990 1995 1997

Chart 11: The Percentage of Countries with a Black Market Exchange Rate Premium

of 25% or More, 1970-1997

29.032.5 32.2 31.4

23.6

8.110.5

5

10

15

20

25

30

35

40

1970 1975 1980 1985 1990 1995 1997

Section 5: International Exchange and Capital Markets,

1970-1997 Tariffs have been reduced. Capital and financial markets have been

liberalized since 1980.

Chart 12: The Average Tax Rate on International Trade as a Share of Exports &

Imports, 1970-1997

6.5

7.0

6.5

6.0

5.2

4.3

3.7

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

1970 1975 1980 1985 1990 1995 1997

Chart 13: The Average Tariff Rate, 1980-1997

26.824.5

21.1

16.4

11.5

5

10

15

20

25

30

1980 1985 1990 1995 1997

Chart 14: The Average Rating for Area VI--International Exchange: Freedom to

Trade with Foreigners, 1970-1997

5.4 5.4 5.4

5.75.9

6.7

7.0

5.0

5.5

6.0

6.5

7.0

7.5

1970 1975 1980 1985 1990 1995 1997

Chart 15: The Average Rating in Area VII--Freedom of Exchange in Capital and

Financial Markets, 1970-1997

4.9

4.6 4.64.8

5.1

5.7

6.0

4.0

4.5

5.0

5.5

6.0

6.5

1970 1975 1980 1985 1990 1995 1997