The Index of Economic Freedom is an annual report that measures the level of economic freedom in countries around the world. The index is published by The Heritage Foundation, a conservative think tank based in Washington D.C., in partnership with The Wall Street Journal. The index uses a combination of qualitative and quantitative data to rank countries on a scale of 0 to 100, with 100 representing the highest level of economic freedom.
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Below is the overview of Index of Economic Freedom:
Index of Economic Freedom: Overview | |
Name of the Index | Index of Economic Freedom |
Published by | The Heritage Foundation |
Headquarters of Publisher | Washington D.C |
Partners in Publishing | Wall Street Journal |
Rating Scale | 0 to 100 |
The index is based on four main pillars of economic freedom: rule of law, government size, regulatory efficiency, and open markets. Within these pillars, the index measures factors such as property rights, government spending, business freedom, labor freedom, and trade freedom. Each of these factors is given a score, and the scores are combined to create an overall score for each country.
The Index of Economic Freedom follows a methodology that is categorized into four groups, each consisting of 12 aspects. These are:
a. Property Rights: This evaluates a country’s capacity to legally safeguard the property rights of its citizens.
b. Judicial Effectiveness: This measures the effectiveness and impartiality of the judiciary in relation to property laws.
c. Government Integrity: This assesses the strength of the government and the occurrence of corrupt practices such as bribery, nepotism, patronage, embezzlement, cronyism, and graft.
a. Tax Burden: This examines the percentage of personal and corporate income that is subject to marginal tax rates and overall taxation levels, including indirect and direct taxes, as a proportion of the GDP.
b. Government Spending: This analyzes the quantity of government spending and its related burden, including state consumption and transfer payments for various entitlement programs.
c. Fiscal Health: This assesses a country’s ability to manage its budgets by measuring growing debt and deficit.
a. Business Freedom: Assesses the cost, time, and degree of freedom associated with starting, operating, and shutting down a business, considering factors like electricity costs.
b. Labor Freedom: Measures the level of interference in labor rights, including minimum wage laws, restrictions on layoffs, severance pay requirements, and regulatory constraints on hiring and working hours, as well as the labor force participation rate.
c. Monetary Freedom: Examines the stability of prices and the extent to which the microeconomy is regulated.
a. Trade Freedom: Measures the impact of tariff and non-tariff barriers on the import and export of goods and services in and out of the country.
b. Investment Freedom: Evaluates the degree of freedom or restrictions on the movement of investment capital for individuals and firms.
c. Financial Freedom: Indicates the efficiency of the banking system and the level of independence of the government from the financial sector.
Despite these criticisms, the Index of Economic Freedom remains a widely used tool for assessing economic conditions around the world. Its focus on key economic indicators and its comprehensive coverage of a wide range of countries make it a valuable resource for investors, policymakers, and business leaders. As the global economy continues to evolve, the index will likely continue to play an important role in shaping economic policy and investment decisions.
Currently, India is categorized as “Mostly Unfree” in terms of the economic freedom its inhabitants enjoy. The 2023 Index of Economic Freedom gave India a total score of 59.8 out of 100, which translates to a 59.8% performance on the index. India’s total score on the 2023 Index is its lowest in six years. In the Index, India is placed at the 121st spot out of 184 nations. India still struggles in areas such as government honesty, freedom for labor, and financial stability, which are significant factors that impact its total score and position on the Index.
Below is the rank of Top 10 Countries in the Index of Economic Freedom:
Top 10 Countries in the Index of Economic Freedom | ||
Rank | Country Name | Score |
1 | Singapore | 89.7 |
2 | New Zealand | 83.9 |
3 | Australia | 82.4 |
4 | Switzerland | 81.9 |
5 | Ireland | 81.4 |
6 | Taiwan | 78.6 |
7 | United Kingdom | 78.4 |
8 | Estonia | 78.2 |
9 | Canada | 77.9 |
10 | Denmark | 77.8 |
Below is the rank of SAARC Countries in the Index of Economic Freedom:
SAARC Countries in the Index of Economic Freedom | ||
Rank | Country Name | Score |
109 | Bhutan | 58.3 |
121 | Bangladesh | 55.6 |
121 | India | 59.8 |
131 | Sri Lanka | 55.7 |
146 | Afghanistan | 53.0 |
152 | Pakistan | 51.7 |
157 | Nepal | 50.7 |
Below is the list published by the Heritage Foundation of the Index of Economic Freedom:
Below is the Scores of the Index of Economic Freedom published by the Heritage Foundation :
India Ranks Fourth in Global Military Expenditure: SIPRI Report
Also Read: Freedom House Index: Tibet ranked the world’s least free country
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