Method
The participants in the conferences reached a consensus that the cornerstones of economic freedom are:
- Personal choice rather than collective choice
- Voluntary exchange coordinated by markets rather than allocation via the political process
- Freedom to enter and compete in markets
- Protection of persons and their property from aggression by others
The 2005 report states "When the functions of the minimal state—protection of people and their property from the actions of aggressors, enforcement of contracts, and provision of the limited set of public goods like roads, flood control projects, and money of stable value—are performed well, but the government does little else, a country’s rating on the EFW summary index will be high. Correspondingly, as government expenditures increase and regulations expand, a country’s rating will decline."
In practice, the index measures:
- Size of Government: Expenditures, Taxes, and Enterprises
- Legal Structure and Security of Property Rights
- Access to Sound Money
- Freedom to Trade Internationally
- Regulation of Credit, Labor, and Business
The report uses 42 distinct variables, from for example the World Bank, to measure this. Some examples: tax rates, degree of juridical independence, inflation rates, costs of importing, and regulated prices. Each of the 5 areas above is given equal weight in the final score.
Read more about this topic: Economic Freedom Of The World
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