The Economic Freedom of the World (EFW) index is a report published annually by the Fraser Institute and the Economic Freedom Network. Using 42 different indicators it measures economic freedom in 141 different nations, making it invaluable for policy makers and politicians looking to identify weaknesses in economic freedom within their countries.
It enables informed decisions that encourage sustainable economic growth and helps to raise awareness about the benefits of economic freedom.
Measuring economic freedom is complex – freedom is a quality rather than quantity. In order to create an effective gauge of an abstract concept such as freedom, and one that can provide a fair comparison between countries, careful selection of indicators is required. The EFW index’s most important measurements include:
The level of government expenditures, taxes and enterprises indicates the size of the government’s role in a market economy. A larger bureaucracy is often more inefficient, obstructing personal choice and damaging competitiveness.
Without the rule of law protecting private property rights, a market order is meaningless. The government has a responsibility to protect property rights, enforce contracts and guarantee the fair and peaceful settlement of disputes.
Money serves three vital functions: a medium of exchange, a unit of account and a store of value. A sound money system heightens the efficiency of the market economy. Access to sound money is measured by money growth, inflation and freedom to own foreign currency bank accounts.
Evidence shows that voluntary exchange is a positive-sum game (it is mutually beneficial). Tariffs, quotas, hidden administrative constraints, exchange rates and capital controls can be imposed which impede international exchange, subsequently reducing economic freedom.
State regulations, especially in the credit market, labour market and business, can be major obstacles to the freedom of the individual’s economic activities.