Economic Freedom of the World Report 2012 Neil Emerick

Authors 100 years since Milton Friedman was born. Gwartney & Lawson 1996 first year. 16 th report Many studies cite the report. –Almost universally suggest that economic freedom leads to higher levels of investment, more rapid economic growth, higher income, rapid reduction in poverty rates

Crisis!

What is Economic Freedom

Economic Freedom?

Democracy vs Economic Freedom

Democracy is not the same as Economic Freedom Democracy = Political decision-making –EF = Decisions through markets Democracy = Majority rule (win/lose) –EF = Mutual agreement (win/win) Democracy = Lobbying to special interests –EF = Lobbying to customers (efficient)

Unconstrained democracy is not the political system most complementary with economic freedom: Limited constitutional government is.

Summary of economic freedom Personal Choice Voluntary exchange coordinated by markets Freedom to enter and compete in markets Protection of persons and property from aggression by others

Report Composition Sources – a report of reports –Objective (where possible) –External data (no author admissions) –Transparent (all sources and calculations quoted)

Key Components Area 1 – Size of Government Area 2 – Legal System and Property Rights Area 3 – Sound Money Area 4 – Freedom To Trade Internationally Area 5 – Regulation

Size of Government Area 1A - General government consumption spending Area 1B - Transfers and subsidies as a percentage of GDP Area 1C - Government enterprises and investment Area 1D - Top marginal tax rate Area 1Di - Top marginal income tax rate Area 1Dii - Top marginal income and payroll tax rates

Legal Institutions Area 2A - Judicial independence Area 2B - Impartial courts Area 2C - Protection of property rights Area 2D - Military interference in rule of law and the political process Area 2E - Integrity of the legal system Area 2F - Legal enforcement of contracts Area 2G - Regulatory restrictions on the sale of real property Area 2H - Reliability of police Area 2I - Business costs of crime

Sound Money Area 3A - Money Growth Area 3B - Standard deviation of inflation Area 3C - Inflation: Most recent year Area 3D - Freedom to own foreign currency bank accounts

Freedom to Trade with Foreigners Area 4A - Taxes on international trade Area 4Ai - International trade tax revenues (% of trade sector) Area 4Aii - Mean tariff rate Area 4Aiii - Standard deviation of tariff rates Area 4B - Regulatory trade barriers Area 4Bi - Non-tariff trade barriers Area 4Bii - Compliance cost of importing and exporting Area 4C - Black-market exchange rates Area 4D - Controls of the movement of capital and people Area 4Di - Foreign ownership/investment restrictions Area 4Dii Capital controls Area 4Diii Freedom of foreigners to visit

Regulation Area 5A - Credit Market Regulations Area 5Ai - Ownership of banks Area 5Aii - Private sector credit Area 5Aiii - Interest rate controls/Negative real interest rates Area 5B - Labor Market Regulations Area 5Bi - Hiring regulations and minimum wage Area 5Bii - Hiring and firing regulations Area 5Biii - Centralized collective bargaining Area 5Biv - Hours regulations Area 5Bv - Mandated cost of worker dismissal Area 5Bvi - Conscription

Regulation … Area 5C - Business Regulations –Area 5Ci - Administrative requirements –Area 5Cii - Bureaucracy costs –Area 5Ciii - Starting a business –Area 5Civ - Extra payments/Bribes/Favoritism –Area 5Cv - Licensing restrictions –Area 5Cvi - Cost of tax compliance

Purpose of the Report Makes a contribution to the scholarly investigation of New Institutional Economics (ie. impact of economic, legal and political institutions on economic performance)

Why is it important?

Results!

Top 10 1Hong Kong 2Singapore 3New Zealand 4Switzerland 5Australia 5Canada 7Bahrain 8Mauritius 9Finland 10Chile

Bottom Burundi 136Chad 137Algeria 138Guinea-Bissau 139Congo, Dem. R. 140Angola 141Congo, Rep. Of 142Zimbabwe 143Myanmar 144Venezuela

South Africa 85th

South African Ranking (past 30 years)

SA Success Black Market Exchange Rates (1) Ownership of Banks (1) Interest Rate Controls (1) Conscription (1) Impartial Courts (18) Freedom of foreigners to visit (19)

SA Homework Hiring and Firing (129) Centralised collective bargaining (128) Reliability of police (126) Standard deviation of tariff rates (125) General Government spending (117) Private sector credit regulation (107)

SA Changes in last 10 years Money Growth (From 90 th to 40 th ) Foreign ownership restrictions (60 th to 40th) Capital controls (75th to 62nd) 7 Improvements

SA Changes in last 10 years Hiring regulations/min wage (16 th to 102 nd ) Government enterprises (20 th to 90 th ) Collective Bargaining (60 th to 128 th ) Hiring and Firing (68 th to 129 th ) Standard deviation of tariffs (64th to 125 th ) 31 disappointments

Major Countries France3547 Germany1731 Greece4581 Italy3483 Spain2434 United Kingdom612 United States218 Unit. Arab Emirates4011 Bahrain197 Brazil86105 India73111 Russia11395 China100107

Software presentation

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