Measuring economic freedom: a comparison of two major sources

Abstract

Overall country ratings on economic freedom by Fraser Institute and Heritage Foundation, which are probably the two most widely-used sources, are compared. Numerous cases of huge differences between country ranks for the two sets of ratings are noted. A simple illustration shows that inferences based on one set of ratings can be very different from those suggested by the other set. Researchers, policy-makers and other users are urged to exercise caution in drawing strong conclusions on the basis of ratings from either source.

Keywords:

• economic freedom
• Fraser Institute
• Heritage Foundation
• human development

JEL Classification:

• O11
• O47
• P51

Notes

¹ de Haan (2003) listed 13 empirical growth studies that included economic freedom as an explanatory variable.

² There are other sources too, even though these may be used less frequently. For example, Doucouliagos and Ulubasoglu (2006, p. 63) note that measures of economic freedom have also been compiled by Freedom House and Scully and Slottje (1991).

³ The methodology is explained by Gwartney et al. (2012, pp. 271–84).

⁴ de Haan and Sturm (2000) and Cebula (2013), besides others, consider different components of economic freedom.

⁵ The ‘impact’ of even Fraser rating might, however, seem small. For example, increasing the rating by one, which is equivalent to a 60-rank movement from Iran (6.26) to Israel (7.24), is associated with an increase of around 0.02 in HDI, which is one-tenth of a movement by 45 places from the bottom of ‘low human development’ category (0.304) to its top (0.534).

⁶ Details for these and all other results are available from the author.