From: Hugo J. Faria
Goal: assessment of the institutional quality observed in the chosen country based on the Economic Freedom of the World (EFW) index of the Fraser Institute.
A country followed by the Economic Freedom of the World Index (EFW) must be chosen by each group of 3 to 4 students. It is desirable that the country chosen by a group is unique. Information about a country’s level of economic freedom can be obtained from the website www.freetheworld.com Read carefully the home page and also click on the link “latest report”. To answer some of the questions below, read the “executive report” and in Chapter 2 you will find data for the chosen country. Keep in mind that the 2015 Economic Freedom of the World Report contains information on countries institutions and policies corresponding to the year 2013.
Issues that you should address:
a) What is the definition of economic freedom?
According to economicfreedom.org, economic freedom is a fundamental characteristic of certain nations that leads to greater opportunity and improved quality of life. Economic freedom incorporates how people and firms to choose to produce, sell, and use their resources while respecting others’ rights to do the same without the government limiting and telling what people can and cannot do. In practicality, economic freedom is the difference between why some nations thrive while others struggle.
The classic definition of economic freedom is:
Individuals have economic freedom when property they acquire without the use of force, fraud, or theft is protected from physical invasions by others and they are free to use, exchange, or give their property as long as their actions do not violate the identical rights of others. An index of economic freedom should measure the extent to which rightly acquired property is protected and individuals are engaged in voluntary transactions.
James Gwartney and Robert Lawson et al.
Economic Freedom of the World: 1996 Annual Report
China’s current economic freedom score is 52.7. This makes them the 139th free-est country in the world according to the 2015 index. They are 0.2 higher than last year. This change has come from modest improvement in freed
China’s economic freedom score is 52.7, making its economy the 139th freest in the 2015 Index. Its overall score is 0.2 point higher than last year, with modest improvements in freedom from corruption. However, business freedom and labor freedom were largely offset by declines in investment freedom and the control of government spending. China is ranked 30th out of 42 countries in the Asia–Pacific region, and its overall score is lower than the global and regional averages.
Over the past five years, economic freedom in China has improved by less than 1.0 point, continuing its patchy and uneven progress since 1995. The one bright spot has been an 8.1-point improvement in labor freedom since 2011. A restrictive residency permitting system remains in place, and gains in labor freedom have been largely offset by losses in other factors, including a 5.5-point decline in the control of government spending.
A more comprehensive set of economic reforms is desperately needed, especially a loosening of the government’s stranglehold on investment flows. The Communist Party’s control of all levels of government continues to undermine confidence in the rule of law and interfere with the development of an independent judiciary. Institutionalized cronyism is prevalent.
b) What are the cornerstones of economic freedom?
The economic freedom is related to the market economy. In the market economy and the economic freedom the most basic factors are demand and supply. The production of goods and services are decided by the Law of Supply and the Law of Demand. Also, the price of goods and services that sellers set is based on the amount of money and consumers willing and able to pay.
According to http://useconomy.about.com/od/US-Economy-Theory/a/Market-Economy.htm. The market economy and economic freedom can be defined by six characteristics.
1. Private Property — Most goods and services are privately-owned. This allows the owners to make legally binding contracts to buy, sell, lease or rent their property. In other words, their property gives them the right to profit from ownership.
2. Freedom of Choice — Owners, businesses, consumers and workers are free to produce, sell and purchase goods and services in a free market. Their only constraint is the price they are willing to buy or sell, and the amount that they are able to buy or sell.
3. Motive of Self-interest — The market is driven by everyone trying to sell their goods or services to the highest bidder, while at the same time paying the least for the goods and services they need.
4. Competition — The forces of competitive pressure keeps prices moderate, and ensure that goods and services are provided most efficiently. Businesses will be bankrupted if they lose in the competition with other rivals in the market freedom.
5. System of Markets and Prices — A market economy is completely dependent on an efficient market in which to sell goods and services. In an efficient market, all buyers and sellers have equal access, and the same information upon which to base their decisions.
6. Limited Government — The role of government is simply to ensure that the markets are open and working. Unlike the planned economy, the government cannot be involved into the market.
In the last century, when Mao was still the chairman of China, Chinese government took control of the entire national economy. However, when Deng became the chairman, he did a lot of revolutions on the Chinese economy. Several characteristics appeared at that time, like competition and limited government. The interference of the government was not as much as before. Those revolutions are very effective to China even at the moment- Chinese economic system has moved from planned economy to mix economy. That is a great leap on Chinese economic freedom.
c) Name the areas of the EFW index.
d) Evolution of the index starting with the earliest year recorded and followed by the index score on years 2000, 2005, 2010 and 2013. Ideally convey this information by means of vertical rectangle graphs placing at the top of the rectangle the index score. Correlate positively the height of the bar with the score level.
e) Establish factors that account for the change. That is, what determined the improvement or worsening of the index naming the areas and components responsible for the change? It is important to keep in mind that your answer must be based EXCLUSIVELY on information contained in the EFW index taken from data available on the country chosen which is found in chapter 2 of the report. No mention of politicians, entrepreneurs or other actors should be made.
f) Why analyzing the index of economic freedom is a relevant issue?
This report is due in class on Monday, December 7, 2015. The report should be typed and I should receive a printed version.
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