Although the level of economic freedom in Lithuania has increased in the past two years, the pace of its growth has been slower than in the other Baltic states, Latvia and Estonia, according to the Economic Freedom of the World: 2000 Annual Report. The report, published by the Lithuanian Free Market Institute and Canada’s Fraser Institute, in conjunction with independent institutes from 53 other countries, ranks 123 countries on their level of economic freedom.
This comprehensive index, constructed under the leadership of The Fraser Institute and Nobel Laureate in Economics, Milton Friedman, is the most objective and accurate measure of economic freedom published to date by any organisation.
“This publication is important to journalists, public policy researchers, government officials, and the general public alike. Not only does it reveal a robust link between economic freedom and prosperity, but also prompts paths to them,” says Elena Leontjeva, President of the Lithuanian Free Market Institute.
Lithuania’s rating is growing but remains the lowest for the Baltic countries
From 1995 until 1997 Lithuania’s rating of economic freedom rose from 5.7 to 6.6 and moved the country from 77th to 62nd place. Latvia has improved its score from 5.7 to 6.7, moving up from 77th to 60th place. Estonia has shown the best performance of the three Baltic states, with a score of 6.8 for 1997 (6.4 in 1995), and ranked 57. In two years’ time it has improved its ranking by 10 positions.
The report indicates that consistent market reforms have allowed Lithuania to improve its rating. However, Lithuania has scored less in both ratings and rankings than the other Baltic countries due to its large government, slower restructuring of the economy and heavier restrictions on international trade. Yet, the authors of the report note that Lithuania can expect further increases in economic freedom if it proceeds further with privatisation (including privatisation of financial services) and eliminates conscription and price controls.
According to the report, Hong Kong and Singapore share top position as the freest jurisdictions in the world, followed by New Zealand (3rd), the United States (4th), and the United Kingdom (5th). Other countries ranking near the top of the list include Ireland (6th), Canada (7th), Australia (7th), Netherlands (9th), Luxembourg (9th), and Switzerland (9th). The least free economies include Myanmar, Democratic Republic of Congo, Sierra Leone, Rwanda, Madagascar, and Guinea-Bissau.
In the 1990s a number of Latin American countries achieved dramatic improvements in both their ratings and rankings. Among Eastern nations, Russia, Hungary and Poland have improved their levels of economic freedom. Countries with a decline in the level of economic freedom in the 1990s include Benin, Chad, Malaysia, Cameroon, and Senegal.
Economic freedom leads to greater prosperity
One of the most compelling results of the study is the relationship between economic freedom and prosperity. Countries that score in the top quintile of the “most economically free” countries had an average per capita GDP of US$18,108 and an average growth rate of 1.6%. As freedom declined, so did the average per capita GDP, as well as the average growth ate. The bottom 20 percent of economically free countries had an average per capita GDP of US$1,669 and an average growth rate of -1.32%. Also, life expectancy in the top quintile is a full twenty years longer than that found in the bottom quintile.
Data from the Economic Freedom of the World series and research studies that use the Economic Freedom of the World ratings confirm that countries with consistently high levels of economic freedom perform far better, both financially and non-financially, than those with low levels of economic freedom. The research indicates that political leadership which fosters more economic freedom creates the domestic foundation s for a higher standard of living and increased economic growth.
Methodology
This edition of Economic Freedom of the World presents updated figures and backdates the data to 1970 (where possible). The addition of historical data makes this the most comprehensive measure of economic freedom ever published. This wealth of data will provide researchers with an opportunity to further explore the relationships between economic freedom and other important social indicators.
The seven major categories of variables included in the index are: (1) size of government, (2) the structure of the economy and use of markets, (3) monetary policy and price stability, (4) freedom to use alternative currencies, (5) legal structure and security of private ownership, (6) freedom of trade with foreigners, and (7) freedom of exchange in capital and financial markets.
Data on twenty-three variables was gathered for 123 countries in the most recent year. These variables attempt to quantify the restrictions on economic freedom imposed by governments in a variety of areas. A score from 0 to 10 (0 being least free, 10 representing freest) based strictly on the data was assigned for each variable for each country. Principal component analysis (an advanced statistical technique) was used to attach weights to the component data which ultimately combine to create a summary rating.
Co-publishers of Economic Freedom of the World: 2000 Annual Report
Albanian Center for Economic Research, Albania * Fundacion del Orden Social de la Libertad, Argentina * Institute of Public Affairs, Australia * Institute for Economic and Politics, Austria * The Institute for Economic Freedom, Bahamas * Making our Economy Right, Bangladesh * Centre for the New Europe, Belgium * Fundacion Libertad, Democracia y Desarrollo (FULIDED), Bolivia * Instituto Liberal do Rio de Janeiro, Brazil * Institute for Market Economics, Bulgaria * The Fraser Institute, Canada * Libertad y Desarrollo, Chile * Centro de Investigaciones Academicas (CIVILIZAR), Columbia * Liberalni institut, Czech Republic * Fundacion Economia y Desarrollo, Inc., Dominican Republic * Instituto Ecuatoriano de Economia Politica, Ecuador * The Institute of Economic Affairs, England * Association pur la Liberte Economique et le Progress Social (ALEPS), France * Liberales Institut der Friedrick Naumann Stiftung, Germany * The Institue of Economic Affairs, Ghana * Centro de Investigaciones Economicas Nacionales, Guatemala * The Hong Kong Center for Economic Research * Szazadveg-Budapest School of Politics, Hungry * Institute of Economic Studies, University of Iceland * Center for Civil Society, India * The Edmund Burke Institute, Ireland * Institue for Advanced Strategic and Political Studies, Jerusalem * Centro Luigi Einaudi, and Gruppo Giovani Imprenditori, Italy * Afraian Research Centre for Public Policy and Market Process, Kenya * The Korea Center for Free Enterprise * Lithuanian Institue of International Political and Economic Relations * Centro de Investigaciones Sobre la Libre Empressa, AC, Mexico * New Zealand Business Roundtable * Free Enterprise Commission (APEDE), Panama * CITEL, Peru * Center for Research and Communication, Philippines * Centrum im. Adama Smitha, Poland * Liberales Institut, Switzerland * Institute for Economic Analysis, Russia * The F.A. Hayek Fondation, Slovak Republic * The Free Market Foundation of Southern Africa * Center for Policy Research, Sri Lanka * Timbro, Sweden * Association for Liberal Thinking, Turkey * Ukranian Center for Independent Political Research * The CATO Institute, United States, Venezuela.
