Global Economic Freedom Index

By : Neha Dhyani

Updated : Mar 3, 2022, 13:00

The Global Economic Freedom Index is an index that measures economic freedom and compares countries to each other in various important areas.

The Heritage Foundation, a conservative think tank based in America, prepares this index annually. It is the most widely referenced index worldwide. The Fraser Institute which is a Canada-based think tank also publishes a well-known index of economic freedom.

What Is Economic Freedom?

Economic freedom is the basic right of every human being to control their property and labour. Individuals are free to work, consume, produce and invest as per their choice in an economically free nation. In such a setup, the government does not restrict the movement of labour, goods or capital, and there are no constraints imposed on freedom apart from what may be required to maintain the liberty of individuals itself.

How is Economic Freedom Measured?

Economic freedom is measured based on a combination of 12 qualitative and quantitative factors. These factors are grouped into four categories as listed below:

  1. Government Size: Includes government spending, tax burden and the fiscal health of an economy.
  2. Rule of Law: The category consists of government integrity, judicial efficacy, and property rights.
  3. Open Markets: This aspect focuses on trade freedom, financial freedom and investment freedom.
  4. Regulatory Efficiency: This includes labour freedom, monetary freedom and business freedom.

Each parameter is graded on a scale of 0 to 100. Then, an average of these factors is calculated, with equal weight given to each aspect.

Why Is The Economic Freedom Index Important?

  • The Global Economic Freedom Index is a useful tool for investors, students, teachers, policymakers, businessmen and a host of other people in different professions.
  • There is a strong correlation between the ranking of a country as per the index and the earnings of its citizens.
  • It gives an objective view of different countries around the world. The historical data helps analyze the fundamentals of economic growth in a country.
  • The indices can help investors choose avenues for investment. They also help observe changes in economies based on trends in growth or decline.

Economic Freedom Index 2021

The Economic Freedom Index of 2021 took into account parameters from 184 countries for the duration of July 2019 to June 2020 to arrive at the final ranking. This is the first index published after the COVID-19 pandemic struck the world.

As per the Economic Freedom Index (2021), Singapore is at the topmost position for the second year in a row. The top five countries are:

  1. Singapore
  2. New Zealand
  3. Australia
  4. Switzerland
  5. Ireland

Singapore's overall score was 89.7 followed by New Zealand at 83.9 points.

India's rank in Economic Freedom Index is 121 worldwide. Among the Asia-Pacific countries, India ranks 26th out of 40 nations. India's overall score is 56.5 and has not changed. Improvements made in business freedom were negated by a drop in judicial efficacy and a few other aspects. The United Kingdom ranks at 7th position with a score of 78.4 points. The United States is at the 20th position with 74.8 points. China has been ranked at number 107 and has a score of 58.4 points.

The Global Economic Freedom Index is a comprehensive measure for the quality of economic, political and legal institutions across different countries. The criteria and score that each country receives may vary from one index to another. Though many institutions publish indices, the Heritage Foundation index is the most popular one published regularly.

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FAQs on Global Economic Freedom Index

Q.1. When did Heritage Foundation Create the Global Economic Freedom Index?

The index was created by the Heritage Foundation headquartered in Washington, D.C, in 1995. This index draws inspiration from Adam Smith’s approach in "The Wealth of Nations".

Q.2. Why was Hong Kong excluded from the index?

Hong Kong was excluded from the rankings for the first time ever in 2021, as its policies are under the direct control of Beijing.

Q.3. Which country has held the number one spot the maximum number of times?

Hong Kong held the number one spot for 25 years till it was excluded from the ranking and Singapore took the number one position.