News Release

June 24, 2002

Cato Institute Issues Sixth Report on Global Economic Freedom
Hong Kong remains in first place, United States climbs to third

WASHINGTON -- Hong Kong is still the world's freest economy, with Singapore coming in a close second, according to the Economic Freedom of the World: 2002 Annual Report. But the United States has climbed from fifth to third position, according to the study, which is a comprehensive rating of 123 of the world's economies.

The Economic Freedom of the World Report is an annual project started with the help of Nobel laureate Milton Friedman. The report uses 37 objective criteria to produce an economic freedom index of the world, published by the Cato Institute, Canada's Fraser Institute and institutes from 54 other countries.

Freedom, poverty and terrorism

As the G8 summit begins in Kananaskis, Canada, it needs to focus on promoting economic freedom if it is serious about fighting global poverty and terrorism, said Friedman. "Economic freedom advances economic growth, reduces poverty and promotes other civil and political freedoms. It is also a tonic against terrorism because of the opportunity it creates. All of the nations behind global terrorism lack economic freedom."

The report, written by James Gwartney and Robert Lawson, examines the relationship between economic freedom and wealth. It shows a strong correlation between economic freedom and per capita income, economic growth, and life expectancy.

That's because economically free societies are more productive, the authors say. The report demonstrates that added productivity translates into higher incomes for everyone. Significantly, the distribution of income is no more unequal in countries with market-oriented economies than in those that are economically repressive.

"Economic freedom is unambiguously good for the poor," said Ian Vásquez, director of the Cato Institute's Project on Global Economic Liberty. "The recent emphasis on increasing foreign aid is misplaced. In the worst cases, such as sub-Saharan Africa, foreign aid has retarded economic freedom."

How did they do?

The rankings of other major economies include the United Kingdom (4th), Canada (8th), Germany (15th), Japan (24th), Taiwan (30th), France (38th), Mexico (66th), and India (73rd).

Most of the lowest ranking nations are in Africa and Latin America. Botswana has the best record for an African nation, tied at 38th with six other nations including France and South Korea. Chile, with the best record in Latin America, was tied with three other nations at 15th.

Three former communist countries are in the bottom 10: Russia (116th), Ukraine (119th), and Romania (114th) all did worse than communist China (101st). Data for North Korea and Cuba are not available.

Trends

The first report was published in 1996 after a decade-long research project, involving over 100 top scholars and several Nobel laureates. Using data going back to 1970, the report tracks the history of global economic freedom. The conclusion: Economic freedom is on the rise worldwide.

The average economic freedom rating was 6.39 for 2000, up from 5.99 in 1995. Economic freedom decreased through the 1970s, falling from 5.98 in 1970 to 5.32 in 1980, but has been on the rise since then.

Says Nobel laureate in economics Gary Becker, "The series of [Economic Freedom of the World] reports has been of enormous value in assessing changes in these crucial freedoms, and in the consequences of freedom for economic progress of different nations. I look forward to each annual report with the latest information on countries that have made significant progress and on others that have fallen back."

Who improved most?
Top 10 absolute increases in economic freedom rating, 1980-2000:

About the authors

James Gwartney is professor of economics at Florida State University and an adjunct scholar at the Cato Institute. He recently concluded a two-year tenure as chief economist at the Joint Economic Committee of the U.S. Congress.

Robert Lawson is professor of economics and George H. Moor Chair in the School of Management at Capital University in Columbus, Ohio.

The Economic Freedom of the World: 2002 Annual Report

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