News Release

September 8, 2005

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Economic freedom reduces the chances of war
Hong Kong ranked first in economic freedom; U.S. ties for third place

WASHINGTON -- Economic freedom is almost 50 times more effective than democracy in diminishing violent conflict between nations, according to the Economic Freedom of the World: 2005 Annual Report, released today by the Cato Institute in conjunction with the Fraser Institute of Canada.

In new research published in this year's report, Erik Gartzke, a political scientist from Columbia University, compares the impact of economic freedom on peace to that of democracy.

"Researchers have long known democracies go to war about as often as other nations but tend not to go to war with each other. However, stable democracies typically have strong levels of economic freedom, leading to the question of whether it is democracy or economic freedom that affects the probability of violent conflict," says co-author of the Index, James Gwartney, Professor of Economics at Florida State University.

When measures of both economic freedom and democracy are included in a statistical study, economic freedom is about 50 times more effective than democracy in diminishing violent conflict. The impact of economic freedom on whether states fight or have a military dispute is highly significant while democracy is not a statistically significant predictor of conflict.

Nations with a low score for economic freedom (below 2 out of 10) are 14 times more prone to conflict than states with a high score (over 8). The overall pattern of results does not shift when additional variables, such as membership in the European Union, nuclear capability, and regional factors, are added.

Gartzke points out that wealth and power are created by markets and the efficient production that arises from them, not by conquest of land or raw materials; changes in the nature of production in modern capitalist states make conquest unprofitable.

Economic freedom on the rise The average economic freedom score rose from 5.2 (out of 10) in 1985 to 6.4 in the most recent year for which data are available. "Of the 109 nations with scores in 1985 and which are included in the most recent index, 96 recorded improvement in their economic freedom score, seven saw a decline, and six registered changes of under 0.1 points," commented co-author, Robert Lawson, Professor of Economics at Capital University, Ohio.

In this year's index, Hong Kong retains the highest rating for economic freedom, 8.7 of 10, closely followed by Singapore at 8.5. New Zealand, Switzerland, and the United States tied for third with ratings of 8.2. The United Kingdom, Canada, and Ireland ranked 6th, 7th, and 8th, respectively. Australia, Estonia, Luxembourg, and the United Arab Emirates tied for 9th. The rankings of other large economies are Germany, 19; Japan, 30; France, 38; Italy, 54; Mexico, 59; India, 66; China, 86; Brazil, 88; and Russia, 115.

Among those nations that have made substantial gains in economic freedom since 1985 are Bolivia, Brazil, El Salvador, Ghana, Iceland, Jamaica, Nicaragua, Peru, Poland, Tanzania, Uganda, and Zambia, though some of these began at very low levels or have experienced ups and downs over the period. Among those nations that have registered significant losses in economic freedom since 1985 are Myanmar, Venezuela, and Zimbabwe.

Most of the lowest-ranking nations are African, Latin American, or former communist states. Botswana's ranking of 30 is the best among continental sub-Saharan African nations. Chile and Costa Rica, tied at 20, have the best record in Latin America. The bottom nations were Burundi, Guinea-Bissau, the Democratic Republic of Congo, Venezuela, Zimbabwe, and Myanmar. However, a number of other nations for which data are not available, such as North Korea and Cuba, may have even less economic freedom.

Nations that are economically free out-perform non-free nations in indicators of well-being

In addition to its important impact on peaceful coexistence among nations, high degrees of economic freedom have other significant advantages the report shows:

• Nations in the top quintile (one-fifth) in economic freedom have an average per capita GDP of US$25,062, compared to US$2,409 for those nations in the bottom quintile.



• The top quintile has an average per capita economic growth rate of 2.5 percent, compared to 0.6 percent for the bottom quintile.



• In nations of the top quintile, the average income of the poorest 10 percent of the population is US$6,451, compared to $1,185 for those in the bottom quintile.



• Unemployment in the top quintile averages 5.2 percent, compared to 13.0 percent in the bottom quintile.



• Life expectancy is 77.7 years in the top quintile compared to 52.5 years in the bottom quintile.



• In nations of the top quintile, only 0.1 percent of children are in the labor force, compared to 22.6 percent in the least economically free nations.



• Nations in the top quintile of economic freedom, have an average score of 1.7 for political rights on a scale of 1 to 7, where 1 marks the highest level of freedom and 7, the lowest level. The bottom quintile has an average score of 5.0.

"The strong link between economic freedom and improvements in the whole range of human development indicators is good news for countries that wish to pull themselves out of poverty. This study shows that countries progress because of their own policies and institutions rather than as a result of external factors, such as aid or geography, that are beyond their control," says Ian Vasquez, director of the Cato Institute's Project on Global Economic Liberty.

About the Economic Freedom Index

Economic Freedom of the World measures the degree to which the policies and institutions of countries are supportive of economic freedom. The cornerstones of economic freedom are personal choice, voluntary exchange, freedom to compete, and security of privately owned property.

The first Economic Freedom of the World Report, published in 1996, was the result of a decade of research by a team which included several Nobel Laureates and over 60 other leading scholars in a broad range of fields, from economics to political science, and from law to philosophy. This is the 9th edition of Economic Freedom of the World and this year's publication ranks 127 nations for 2003.