Fraser Institute Economic Freedom of the World WHAT IS THE INDEX OF THE ECONOMIC FREEDOM OF THE WORLD (EFW) Fraser Institute provides an overview of the economic freedom of the world An annual compilation of data representing factors, which make a country economically free Data used: third party data & independent surveys for 141 countries inter alia o IMF, WB, World Economic Forum
Fraser Institute Structure of the EFW Index EFW index measures the degree of economic freedom in 5 major areas 5 Major Areas 1. Size of Government 2. Legal System and Security of Property Rights 3. Sound Money 4. Freedom of Trade Internationally 5. Regulation 5 major areas include 24 components. Components are made up of several sub-components. The index comprises 42 distinct variables. Each component and sub-component is measured on a scale from 0 to 10
Fraser Institute Structure of the EFW Index Areas, components and sub-components of the EFW Index 1. Size of Government: Government consumption Transfers and subsidies Inflation: most recent year Government enterprises and investment Top marginal tax rate o Top marginal income tax rate o Top marginal income and payroll tax rate 2. Legal System and Property Rights: Judicial independence Impartial courts Protection of property rights Military interference in rule of law and politics Integrity of the legal system Legal enforcement of contracts Regulatory restrictions on the sale of real property Reliability of police Business costs of crime
Fraser Institute Structure of the EFW Index Areas, components and sub-components of the EFW Index 3. Sound Money: Money growth Standard deviation of inflation Inflation: most recent year Freedom to own foreign foreign currency back accounts 4. Freedom to trade internationally: Tariffs o Revenue from trade taxes (% of trade sector) o Mean tariff rate o Standard deviation of tariff rates Regulatory trade barriers o Non-tariff trade barriers o Compliance costs of importing and exporting Black-market exchange rates Controls of the movement of capital and people o Foreign ownership/investment restrictions o Capital controls o Freedom of foreigners to visit
Fraser Institute Structure of the EFW Index Areas, components and sub-components of the EFW Index 5. Regulation Credit market regulations o Ownership of banks o Private sector credit o Interest rate controls/negative real interest rates Labor market regulations o Hiring regulations and minimum wage o Hiring and firing regulations Business Regulations o Administrative requirements o Bureaucracy costs o Starting a business o Extra payments/bribes/favoritism o Licensing restrictions o Cost of tax compliance o Centralized collective bargaining o Hours regulation o Mandated cost of worker dismissal o Conscription
Economic Freedom of the World GEORGIA - Up from 76 th in 2003 to 42 nd in 2010 among 141 countries (improvement by 34 points) In 2003 on 76 th position, score 6.27 Georgia s Ranking in 2003 2010 In 2004 on 81 st position, score 6.15 o from 2003 till 2004 it worsened by 5 points In 2005 on 70 th position, score 6.85 o from 2004 till 2005 it improved by 11 points In 2006 on 40 th position, score 7.32 o from 2005 till 2006 it improved by 30 points In 2007 on 45 th position, score 7.24 o from 2006 till 2007 it worsened by 5 points 90 60 30 0 6,15 6,85 6,27 76 81 70 7,32 7,24 40 45 7,47 7,36 7,34 42 23 27 8 6 4 2 0 In 2008 on 23 rd position, score 7.47 o from 2007 till 2008 it improved by 22 points 2003 2004 2005 2006 2007 2008 ranking score In 2009 on 27 th position, score 7.36 o from 2008 till 2009 it worsened by 4 points In 2010 on 42 nd position, score 7.34 o from 2009 till 2010 it worsened by 15 points
Economic Freedom of the World In EFW ten (10) is the highest possible rating and zero (0) is the lowest. A higher rating indicates a greater degree of economic freedom. Change of Scores By Categories Area Economic Freedom Ranks, 2009 2010: 1. Size of Government 83 (dropped 68 ranks) 2. Legal System & Property Rights 66 (moved up 20 ranks) 3. Access to Sound Money 62 (dropped 22 ranks) 4. Freedom to Trade Internationally 11 (moved up 13 ranks) 5. Regulation 32 (moved up 24 ranks) 6,24 5,48 5,55 5,71 Size of Government Legal System& Property rights 9,24 8,8 Sound Money 8,54 8,20 Freedom to Trade Internationally 7,75 7,17 Regulation of Credit 1. Size of Government In 2010 rank 83 (total score 6.24) 12 10 8 6 4 2 0 4,99 5,45 Government consumption 6,91 7,49 Transfers and ubsidies 0,0 2,0 Government enterprises and investment 10,0 10,0 Top marginal tax rate
Economic Freedom of the World 2. Legal Structure & Security of Property Rights 3. Access of Sound Money In 2010 rank 66 (total score 5.71) In 2010 rank 62 (total score 8.80) 9,93 9,93 6,50 6,5 7,02 6,22 7,44 6,63 9,3 8,66 7,99 7,97 9,65 10,0 8,58 10,0 3,22 3,63 3,68 4,50 3,78 3,74 3,71 3,70 Judicial indep impartial courts prot. of prop. rights military interference legal enforcement of contracts Reg.restrictions of sale of real proeprty reliability of police Business costs of crime Money growth Standard deviation of inflation Inflation: most recent year 4. Freedom to Trade Internationally 5. Regulation of Credit, Labor and Business Freedom to own foreign currency In 2010 rank 11 (total score 8.20) In 2010 rank 32 (total score 7.75) 12 8 9,07 9,10 7,62 6,34 10,0 10,0 7,48 7,34 6,33 6,18 7,87 7,80 7,3 7,28 4 0 Tariffs Regulatory trade barriers Black-market exchange rates Controls of the movement of capital and people Credit market regulations Labour market regulations Business regulations
Economic Freedom of the World The figures presented below, show the ratings of top ten countries, Georgia and its neighboring countries by economic freedom Rank of Georgia and Other Countries Rank of Top Ten Countries by Economic Freedom Estonia 14 Hong Kong 1 Lithuania 28 Singapore 2 Armenia 35 New Zealand 3 Georgia 42 Switzerland 4 Bulgaria 45 Australia 5 Latvia 61 Canada 6 Turkey 75 Bahrain 7 Russia 95 Mauritius 8 Azerbaijan 116 Finland 9 Ukraine 122 Chile 10