2007 Index of Economic Freedom

Contributors
Tim Kane, Ph.D., is Director of the Center for International Trade and Economics (CITE) at The Heritage Foundation. Kim R. Holmes, Ph.D., is Vice President of Foreign and Defense Policy and Director of the Kathryn and Shelby Cullom Davis Institute for International Studies at The Heritage Foundation. Mary Anastasia O’Grady is a Member of The Wall Street Journal Editorial Board and Editor of the Journal’s “Americas” column. William W. Beach is Director of the Center for Data Analysis at The Heritage Foundation. Ana Isabel Eiras is Senior Policy Analyst in International Economics in the Center for International Trade and Economics (CITE) at The Heritage Foundation. She is also Editor of the Spanishlanguage edition of the Index of Economic Freedom. Edwin J. Feulner, Ph.D., is President of The Heritage Foundation. Paul A. Gigot is Editor of The Wall Street Journal Editorial Page. Anthony B. Kim is Research Associate in the Center for International Trade and Economics (CITE) at The Heritage Foundation. Daniella Markheim is Jay Van Andel Senior Trade Policy Analyst in the Center for International Trade and Economics (CITE) at The Heritage Foundation. Johnny Munkhammar is a research scholar at the Swedish think tank Timbro. Andrew L. Peek is Research Assistant in the Center for International Trade and Economics (CITE) at The Heritage Foundation. Xavier Sala-i-Martin is a professor of economics at Columbia University. Brett D. Schaefer is Jay Kingham Fellow in the Margaret Thatcher Center for Freedom at The Heritage Foundation.

2007 Index of Economic Freedom
Tim Kane, Ph.D. Kim R. Holmes, Ph.D. Mary Anastasia O’Grady
with Ana Isabel Eiras, Anthony B. Kim, Daniella Markheim, Andrew L. Peek, and Brett D. Schaefer

Copyright © 2007 by The Heritage Foundation and Dow Jones & Company, Inc. The Heritage Foundation 214 Massachusetts Avenue, NE Washington, DC 20002 (202) 546-4400 heritage.org The Wall Street Journal Dow Jones & Company, Inc. 200 Liberty Street New York, NY 10281 (212) 416-2000 www.wsj.com

Cover images by Punchstock, Corbis, World Bank ISBN: 0-89195-274-8 ISSN: 1095-7308

Table of Contents

Foreword ................................................................................................................................................ ix Paul A. Gigot Preface ..................................................................................................................................................... xi Edwin J. Feulner, Ph.D. Acknowledgments .............................................................................................................................. xiii Tim Kane, Ph.D., Kim R. Holmes, Ph.D., and Mary Anastasia O’Grady What’s New in the 2007 Index? ........................................................................................................... xv Executive Summary ................................................................................................................................1 Chapter 1: Global Inequality Fades as the Global Economy Grows ..............................................15 Xavier Sala-i-Martin Chapter 2: The Urgent Need for Labor Freedom in Europe—and the World ...............................27 Johnny Munkhammar Chapter 3: Methodology: Measuring the 10 Economic Freedoms .................................................37 William W. Beach and Tim Kane, Ph.D. Chapter 4: Economic Freedom in Five Regions ................................................................................57 Tim Kane, Ph.D. Chapter 5: The Countries .....................................................................................................................73

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Albania............................................................ 77 Algeria ............................................................ 79 Angola............................................................. 81 Argentina........................................................ 83 Armenia .......................................................... 85 Australia ......................................................... 87 Austria ............................................................ 89 Azerbaijan ...................................................... 91 The Bahamas .................................................. 93 Bahrain ............................................................ 95 Bangladesh ..................................................... 97 Barbados ......................................................... 99 Belarus ............................................................ 101 Belgium ........................................................... 103 Belize ............................................................... 105 Benin ............................................................... 107 Bolivia ............................................................. 109 Bosnia and Herzegovina .............................. 111 Botswana ........................................................ 113 Brazil ............................................................... 115 Bulgaria........................................................... 117 Burkina Faso .................................................. 119 Burma (Myanmar)......................................... 121 Burundi ........................................................... 123 Cambodia ....................................................... 125 Cameroon ....................................................... 127 Canada ............................................................ 129 Cape Verde ..................................................... 131 Central African Republic .............................. 133 Chad ................................................................ 135 Chile ................................................................ 137 China, People’s Republic of ......................... 139 Colombia ........................................................ 141 Congo, Democratic Republic of (formerly Zaire) .......................................................... 143 Congo, Republic of ........................................ 145 Costa Rica ....................................................... 147 Croatia............................................................. 149 Cuba ................................................................ 151 Cyprus (Greek) .............................................. 153 Czech Republic .............................................. 155 Denmark ......................................................... 157 Djibouti ........................................................... 159
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Dominican Republic ..................................... 161 Ecuador ........................................................... 163 Egypt ............................................................... 165 El Salvador ..................................................... 167 Equatorial Guinea ......................................... 169 Estonia ............................................................ 171 Ethiopia........................................................... 173 Fiji .................................................................... 175 Finland ............................................................ 177 France .............................................................. 179 Gabon .............................................................. 181 The Gambia .................................................... 183 Georgia ........................................................... 185 Germany ......................................................... 187 Ghana .............................................................. 189 Greece ............................................................. 191 Guatemala ...................................................... 193 Guinea ............................................................. 195 Guinea–Bissau ............................................... 197 Guyana............................................................ 199 Haiti................................................................. 201 Honduras........................................................ 203 Hong Kong ..................................................... 205 Hungary ......................................................... 207 Iceland............................................................. 209 India ................................................................ 211 Indonesia ........................................................ 213 Iran .................................................................. 215 Iraq .................................................................. 217 Ireland ............................................................. 219 Israel ................................................................ 221 Italy.................................................................. 223 Ivory Coast ..................................................... 225 Jamaica ............................................................ 227 Japan ............................................................... 229 Jordan .............................................................. 231 Kazakhstan ..................................................... 233 Kenya .............................................................. 235 Korea, Democratic People’s Republic of (North Korea) ............................................ 237 Korea, Republic of (South Korea) ................ 239 Kuwait ............................................................ 241 Kyrgyz Republic ............................................ 243

2007 Index of Economic Freedom

Laos ................................................................. 245 Latvia .............................................................. 247 Lebanon .......................................................... 249 Lesotho ........................................................... 251 Libya ............................................................... 253 Lithuania ........................................................ 255 Luxembourg................................................... 257 Macedonia ...................................................... 259 Madagascar .................................................... 261 Malawi ............................................................ 263 Malaysia.......................................................... 265 Mali ................................................................. 267 Malta ............................................................... 269 Mauritania ...................................................... 271 Mauritius ........................................................ 273 Mexico............................................................. 275 Moldova.......................................................... 277 Mongolia......................................................... 279 Morocco .......................................................... 281 Mozambique .................................................. 283 Namibia .......................................................... 285 Nepal ............................................................... 287 The Netherlands ............................................ 289 New Zealand.................................................. 291 Nicaragua ....................................................... 293 Niger ............................................................... 295 Nigeria ............................................................ 297 Norway ........................................................... 299 Oman............................................................... 301 Pakistan .......................................................... 303 Panama ........................................................... 305 Paraguay ......................................................... 307 Peru ................................................................. 309 The Philippines .............................................. 311 Poland ............................................................. 313 Portugal .......................................................... 315 Qatar................................................................ 317 Romania .......................................................... 319 Russia .............................................................. 321 Rwanda ........................................................... 323 Saudi Arabia................................................... 325 Senegal ............................................................ 327 Serbia and Montenegro ................................ 329

Sierra Leone.................................................... 331 Singapore ........................................................ 333 Slovak Republic ............................................. 335 Slovenia .......................................................... 337 South Africa ................................................... 339 Spain................................................................ 341 Sri Lanka ......................................................... 343 Sudan .............................................................. 345 Suriname......................................................... 347 Swaziland ....................................................... 349 Sweden............................................................ 351 Switzerland .................................................... 353 Syria ................................................................ 355 Taiwan............................................................. 357 Tajikistan......................................................... 359 Tanzania.......................................................... 361 Thailand .......................................................... 363 Togo ................................................................. 365 Trinidad and Tobago ..................................... 367 Tunisia ............................................................. 369 Turkey ............................................................. 371 Turkmenistan ................................................. 373 Uganda ........................................................... 375 Ukraine ........................................................... 377 United Arab Emirates ................................... 379 United Kingdom............................................ 381 United States .................................................. 383 Uruguay.......................................................... 385 Uzbekistan...................................................... 387 Venezuela ....................................................... 389 Vietnam........................................................... 391 Yemen.............................................................. 393 Zambia ............................................................ 395 Zimbabwe....................................................... 397 Appendix ........................................................ 399 Major Works Cited ........................................ 407

Table of Contents

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Advisory Board
The following members of the Advisory Board for the 2007 Index of Economic Freedom were consulted as part of the ongoing review of the methodology used in this year’s edition. Their advice, insights, and critiques, as well as the efforts of many others who participated in the review process, are gratefully acknowledged. William W. Beach, co-chairman, The Heritage Foundation Tim Kane, co-chairman, The Heritage Foundation Maria Sophia Aguirre, Catholic University of America Donald J. Boudreaux, George Mason University Ike Brannon, Economist, Washington, D.C. Simeon Djankov, World Bank Axel Dreher, ETH Zurich Clive Granger, University of California, San Diego Douglas Holtz-Eakin, Council on Foreign Relations Garett Jones, Southern Illinois University Edwardsville Mordechai “Max” Kreinin, Michigan State University Philippe Lacoude, Economist, Paris, France Richard Roll, University of California, Los Angeles Xavier Sala-i-Martin, Columbia University Friedrich Schneider, University of Linz Aaron Smith, University of California, Davis

but that is no certainty. to be sure. and $75-a-barrel oil. While the United States is shifting to a slower pace of growth following the boom from mid-2003 to early 2006. the change at the margin. however. there continues to be no sign of recession. however. is that what really matters is the direction of policy: that is. China and India are roaring ahead. and the emergence of India as a global economic player continues. Center-left isn’t the economic drag it used to be even in India. terrorism. Start with the U. defying war. the economic news continues to be mostly good.. As we greet 2007.Foreword he world economy has had another stellar year. where the congressional election campaign created bipartisan policy stampedes against foreign investment from China and ix . there are warning signs that adherence to those lessons may be starting to fray. however. One lesson of this Index. On the surface. and even Old Europe left the doldrums in 2006. notwithstanding the return of a center-left government in New Delhi that has tried to temper the pace of economic change. And on that score. That answer depends in part on how much the Federal Reserve must raise interest rates to compensate for its mistake of keeping monetary policy so loose for too long in 2003 and 2004. The major issue in the next year is whether the decline in housing will be so deep that it sinks the larger economy. growing in the neighborhood of 5 percent and continuing what has become the strongest four-year expansion since the 1970s. The pace of world trade and investment continued to accelerate. there is some reason for worry about an erosion in economic freedom.S. albeit in relatively modest terms. and millions more of the world’s poor entered the middle class. Japan seems finally to have shaken its decade-long deflation. The early evidence is that rising corporate profits and a robust labor T market will offset the housing slump. This is testament in part to the policy lessons highlighted these past 13 years in this Index of Economic Freedom.

but the most he may be able to accomplish is to prevent any major policy mistakes. where labor mobility is high. with strong new voices rejecting the free trade consensus of the past 50 years. There are no permanent victories in politics or economics. in its lack of wisdom. Congress. President Bush retains his office lease and veto pen for two more years. however. This policy drama is all the more reason to welcome the refinements in this year’s Index. and one question is whether this is a temporary setback due to weak political leadership.S. Paul A. My guess is the former. Political gridlock is probably the best we can expect until the policy showdown that is likely to take place in the 2008 presidential contest. This is short-sighted in the extreme. The shift to a 0–100 freedom scale allows for more nuanced distinctions among countries. the talks remain caught between a French-led Europe that refuses to reduce its farm subsidies and an assertive bloc of developing nations that won’t bend on manufacturing and services without such a European concession. The introduction of a measure for labor freedom is also notable and informative because labor mobility has clearly become crucial to national prosperity and competitiveness.Dubai. is also seeking to add even more political hurdles to foreigners who want to create jobs by investing in America. for example. which is one reason that this Index exists to chronicle annual progress or regression. The next year is one to watch carefully for setbacks and to remind forgetful politicians of the benefits of economic freedom. This is all the more reason for the world’s policymakers to complete the Doha Round of trade talks as soon as possible. when that expires in mid2007. but I would prefer not to test that proposition in the teeth of a global recession.3 percentage point from a year earlier—also suggests the policy setbacks I have described. At this writing. He will almost certainly not be able to extend his trade promotion authority. Merely contrast the job creation in the U. Gigot Editorial Page Editor The Wall Street Journal November 2006 x 2007 Index of Economic Freedom . The election also moved Congress to the left economically. with the record in France and Germany to prove that point. The slight overall decline in average world economic freedom—down 0. or whether it reflects a larger popular backlash against the dynamic forces of globalization..

The importance of economic freedom—an individual’s natural right to own the value of what he or she creates—would seem to be anything but controversial. and investment served as the foundations of true democracy and revolutionized the world. Thus. Tariffs. it is not the defeat of Nazism or the collapse of Soviet Russia. xi . as we progress into a new century. People crave liberation from poverty. never lack champions or supporters.Preface f there is a single triumph that history will remember about the 20th century. The Index of Economic Freedom has documented the progress of market economics with research and analysis for 13 years and encompasses 161 countries. trade. It is therefore precisely the importance of economic freedom—and ultimately. and the media. countries around the world are adopting new institutions to enhance their economic growth. political freedom—that makes our publication of the Index of Economic Freedom so necessary. Published jointly by The Heritage Foundation and The Wall Street Journal. entrepreneurship. the annual Index continues to serve as a critical tool for students.” Now. history will surely remark that the more fundamental freedoms of property. business leaders. as Milton Friedman pointed out. Tracing the path to economic prosperity. policymakers. but the West’s enduring confidence in freedom as a moral and liberating force for all peoples. just one I example of protectionism. It follows the simple tenet that something cannot be improved if it is not measured. and the urge to avoid risk will always pressure societies to expand the size and weight of government intervention. the Index has created a global portrait of economic freedom and established a benchmark by which to gauge a country’s prospects for economic success. teachers. Yet the struggle for economic freedom faces timeless opposition. investors. work. The victory of political freedom as a universal ideal is so complete today that even modern tyrannies cloak their countries as “people’s republics. and they hunger for the dignity of free will.

Feulner. unbiased overall score. this edition includes our traditional country pages. The real world—a walk. Edwin J. and the Americas are home to both the richest and some of the most dynamic countries in the world. although others. Asia has both the world’s three freest economies and its least free economy. and the Americas are the three freest regions. Asia. The 2007 Index shows that economic freedom worldwide has decreased slightly since last year but remains high. and each has something special worth noting.In this 13th edition.D. starting with our tradition of blending “Ten Freedoms” equally to produce a simple. a core of stability remains. in the middle of the pack. In addition. Europe has over half of the top 20 countries. so that each freedom in every economy is explained in detail. The Middle East’s freedom increased to its highest level since 1995. And of course. Each country page includes new charts highlighting the strengths and weaknesses of each economy. Countries are assigned a percent score rather than a 1–5 rating. Despite these changes. Most of the 20 freest countries from last year are still ranked among the freest. President The Heritage Foundation November 2006 xii 2007 Index of Economic Freedom . it may well be that academic methodology and carefully measured charts cannot make the best case for economic freedom. Europe. have experienced some shuffling as a result of the greater level of detail in the new methodology. labor freedom (something that was simply not measurable before) has been added as a variable. through downtown Hong Kong—is far more eloquent than we can ever hope to be. we have refined the methodology to reflect a clearer picture of economic freedom. as well as the vital importance of labor freedom in Europe and elsewhere. and several other factors have been honed to provide more objectivity and greater attention to detail. The 2007 Index contains two guest chapters written by outside scholars that document the spectacular growth of incomes in the face of globalization. This edition also contains a description of the new methodology and an entirely new chapter analyzing each of the five geographic regions—a focus that matters for local competition. Ph. perhaps. At the most personal level. however.

In the Information Technology Department. an effort that this year involved Ana Isabel Eiras. The Heritage Foundation’s Center for International Trade and Economics (CITE) produces the Index. Elizabeth Brewer. who have made such valuable contributions to this 13th annual edition of the Index of Economic Freedom.Acknowledgments e wish to express our profound gratitude to the many individuals. and Alex Adrianson were responsible for all aspects of the production process. In the Douglas and Sarah Allison Center for Foreign Policy Studies. Others at The Heritage Foundation also made invaluable contributions to this year’s edition. invaluable help was provided by Vice President of Information Technology Michael Spiller and Michael Smith. and Brett Schaefer. wrote introductions and provided assistance. Manager Therese Pennefather. In Publishing Services. xiii . including the extensive design and layout that make this 13th edition the most readable and accessible yet published. and Allison Goodman provided valuable production support. Tkacik. especially those at The Heritage Foundation. a division of the Kathryn and Shelby Cullom Davis Institute for International Studies. and John J. and Marla did the initial editing of all 161 country introductions. and Will Schirano wrote introductory paragraphs and provided their W expertise. Dale. In the Asian Studies Center. Stephen Johnson. Anthony Kim. Yvette Campos and Marla Graves provided valuable production support. Balbina Hwang. Jr. made to the content of this year’s Index. James Phillips. as well as research assistant Andrew Peek. Dana Dillon. We are particularly grateful to Center for Data Analysis Director William Beach for his continued support and for his contributions to the methodology chapter.. Director of the Douglas and Sarah Allison Center for Foreign Policy Studies. Daniella Markheim. We are especially grateful for the many insightful contributions that Helle C. We are grateful for their professionalism. Ariel Cohen.

William Middendorf II. who was responsible for final review of the completed text. Kim R. and the dedicated research of Heritage interns Hayley Darden. Each year. Rebecca Hagelin. Alison Fraser. Mary Anastasia O’Grady November 2006 xiv 2007 Index of Economic Freedom . who carefully reviewed every one of the many charts and tables included in the book.heritage. who originally encouraged us to undertake such a study of global economic freedom. Andrew Peek was responsible for proofreading the English-language drafts and crosschecking the facts and figures. businesses. Sarah MacArthur. government agencies. Poole. As always. John Sieg. year after year. Alana Finley. Once again. U. research organizations. In addition.D. We are grateful to Director of Online Communications Ted Morgan.S. We hope this year’s effort once again matches the expectations of our supporters. and Caroline Walsh did much to make the specialists’ in-depth analysis possible. their professionalism.D. Their assistance is much appreciated. and Senior Copy Editor William T. we wish to express our deep appreciation for the work of Senior Editor Richard Odermatt. We also thank James Dean. who continues to bear the primary responsibility for editing the entire book. and the other IT staff for placing the entire Index on the Heritage Web site (www. We are likewise grateful to Editor Jon Rodeback. foreign embassies. Finally.org/index/). either praise or criticize the Index of Economic Freedom so enthusiastically. Holmes. and other organizations cooperated by providing us with the data used in the Index. Ph. we would like to express our appreciation to the many people who. as well as the thoughtful critics who so often have provided the insights that enable us to continue to improve the Index. and attention to detail play a crucial role in making the Index a reality. Tim Kane. Tosan Ogharaerumi. we acknowledge our enduring debt to Heritage Trustee Ambassador J. The support and encouragement of people in all parts of the world continue to serve as a major source of inspiration for The Heritage Foundation and The Wall Street Journal in their ongoing collaboration on this important work. Countless individuals serving with various accounting firms. Peter Farmer. and Bridgett Wagner for their insightful contributions and support. Jan Smith. Ph. Mike Franc. commitment to the project.as well as for developing the world and country maps and formatting the charts and tables.

the methodology has been improved with the help of a newly formed academic advisory board and utilization of new data from the World Bank that have been made available only recently. 2004. For example. An extensive redesign of the country pages includes two new charts to help readers quickly assess each economy’s progress. year-by-year improvement. These changes continue the Heritage Foundation/Wall Street Journal tradition of continuing. the editors evaluate the Index of Economic Freedom and consider ways to improve the product. That same edition was the first to suspend countries from grading as a result of insufficient or inapplicable data. 2002. they are driven by a new process: a fundamental effort to formalize the feedback so that suggestions of friends. government. and the entire time series was revised so that all scores were and are as consistent as possible. and 2006 to enhance the robustness of one or more of the 10 factors that are used to mea- E sure overall economic freedom.What’s New in the 2007 Index? very year. policymakers. We also solicited advice from academic scholars before revising the methodology. The book is physically smaller to enhance its usability and portability. and international communities who downloaded the Index from our Web site last year to assess our strengths and weaknesses. and other readers are collected. The 2001 Index saw the publication of a Spanish-language edition in cooperation with several Latin American think tanks. This year’s edition of the Index embodies the most dramatic changes. in both style and substance. we conducted an internal survey of scholars at Heritage and an external survey of 375 people from the academic. and acted upon. that have been made since publication of the inaugural edition in 1995. Finally. dating back to 1995. business. scholars. To the extent that the changes are bigger in 2007 than ever before. considered. xv . Previous years’ scores have been revised to reflect the more rigorous approach. Changes in the methodology were instituted in 2000.

Government Intervention Freedom from Government The Index is converting to a 0–100 scorMonetary Policy Monetary Freedom (80%) ing scale that both translates more easWages and Prices Monetary Freedom (20%) ily into percentages of freedom and Foreign Investment Investment Freedom ends the use of discrete brackets (1. which is due to the working on different ways to measure eco. First. It must be the 2007 Index follows: emphasized that the new methodology is not only for 2007 scores. of 1 percent and 2 percent. not a mere absence of oppression. for numerous factor variables. Small policy changes nomic freedom agree that such an abstract con. In where possible. One example of the increased detail in tity. • Continuous Percentile Scores. and (4) to add a factor for labor addition. For this reason. tradi• New Methodology. it has been imple• Academic Advisory Board. Regulation Business Freedom Those scholars who approved of the Trade Policy Trade Freedom final methodology that was developed Fiscal Burden Fiscal Freedom then offered their endorsement. but now we use an equation that report that became available only recently are allows for finer detail in the scores. An obvious consequence of the new methodIt gives credibility to the product and is a key ology is the effect on each country’s overall tool in fighting claims of bias. economic freedom is a positive quanfreedom. be unbiased. The recent xvi 2007 Index of Economic Freedom 10 Factors 10 Freedoms . (2) to add regional context methodology and precision improved in subseto the rankings.quent editions. a score of Informal Market Freedom from Corruption 83.were based on the original methodology. we assembled an • A New Labor Freedom Factor. ology is the heart of the entire Index project.new attention to detail. The 10 factors have been renamed as changed. (3) to enhance the methodologi. 3. Second.3 percent instead of an 80 or 90. Banking and Finance Financial Freedom 2. it became increasingly obvious cal rigor by using equations instead of brackets that the scoring should be brought into line. All (N/A) Labor Freedom previous scores back to 1995 have been converted to the new 0–100 scale.academic advisory board to review the methodology with us on a continuing (Old Methodology) (New Methodology) basis. While scholars freedom score and ranking. an equaa percentage point—the higher the monetary tion-based approach replaces the bracket scores freedom score. respectively. the most methodology and can cause a large change in important attribute of any approach is that it worldwide rank for many countries. and 5) in favor of a continuous scale that allows an economy in many Property Rights Property Rights cases to receive.are detected more easily in the more detailed cept can never be measured perfectly. in the Index because both economies were in the new data from the World Bank’s Doing Business same bracket. and the the new Index is the way monetary freedom is use of a zero to denote a total lack of freedom measured: Two economies with inflation rates seems to epitomize this. rather. for example. The Index methodology tionally were given identical monetary scores is changing substantively in several ways. The Some of the most common suggestions were 5–1 rankings in use in the 1995–2006 editions (1) to use a new 0–100 percent grading scale (where a lower number equaled more freedom) rather than 5–1 so that a higher score now repre. both this year and in future years. As the sents more freedom. In the new utilized as the basis for the business freedom methodology for monetary freedom. The method. notably inflation A more detailed explanation of what has and tariffs. 4. the closer factor (replacing the old regulation factor) and an inflation rate is to zero—even one-tenth of a new labor freedom factor. in described in the accompanying table. as well as what has not changed.mented for this year and all previous years.

As a result. The heading includes the world rank for each economy and a new regional rank. The time series chart has been expanded to give a better sense of how a country’s economic freedom is evolving. replacing the old North America and Europe. Just because Canada is wealthier than many other New World economies does not necessarily mean that its people are better or that its economy merits inclusion in a different class of countries. the 10 freedoms and even the raw data are also available transparently on-line. Labor laws were covered in the previous methodology as a small component of the regulation factor and less-than-equal component of the wages and prices factor. Mexico.heritage. but this was primarily because no consistent data source existed for cross-country comparisons until 2003. hours. We cannot promise perfection. Europe is now a separate region. Finally. the United Kingdom ranks as the 6th freest economy in the world in 2007. Moreover. and the United States is number one in the Americas.S. there undoubtedly will be mistakes in the scores. which now includes both time series lines for the world and regional averages from 1995 to the present. the Index will emphasize a country’s regional rank as well as its global rank. GDP in terms of purchasing power parity. A paragraph that describes historical background for each country. but we do promise objectivity: Our methods and modifications will always be transparent and duplicable by other scholars. From this year forward. • New Regions. and measurable regulatory burdens on hiring. and the U. The new approach focuses more precisely on economic policy and the Index scores. a new second chart created for each economy shows graphically how each of a country’s 10 economic freedoms compares to the world average. The “Quick Facts” box has been revised to include many new variables: unemployment and inflation rates. even though the Index itself is published in January. with political context. our goal is and will remain the same: to advance human freedom. they also represent our long-standing philosophy of human equality. • New Country Page Design. Revised scores of individual factors for all years are available for download at www. During a period of aggressive improvements. Mauritius is the best in sub-Saharan Africa. These regions are not only more geographically consistent. three official development assistance measures. Despite the new look. and external debt. though cuttingedge and well-respected. This means that the integrity of the current-year scores is crucial. For researchers who want to weight the Index or consider individual components in statistical analysis. We believe that the redesigned Index might even make the transition to a better world faster and surer. The new labor freedom factor is based on objective data from the World Bank’s Doing Business study. a five-year compound average annual growth rate. Israel has the freest economy in the Middle East/North Africa region. based on our errors and errors in source data.labor riots in France and the wide disparity in unemployment rates across countries call for a stronger focus on labor freedom.org/Index. These five regions are consistent with past Index groupings with the exception of three countries: Canada. For example. These cross-country labor data. xvii What’s New in the 2007 Index? . remains as an anchor on the first page. We believe (and have always believed) that all peoples have equal potential and that all economies deserve equal liberty. The new country page design emphasizes overall economic freedom on the first page and details for each of the 10 areas of economic freedom on the second page. severance requirements. are now included in the Americas (which replaces Latin America as a region). based on policies and data available as of the previous June. foreign direct investment (FDI). which covers minimum wages. we remain committed to providing the most accurate and up-to-date measures on-line and will make any needed corrections to that source file immediately. but it also ranks as the freest in Europe. We hope the changes in the Index make it an even better research tool and a more accessible policymaking guide. One of the editors’ paramount concerns is that the Index always remains a useful tool for researchers. are available only for 2005–2007. laws inhibiting layoffs. Similarly. however. and so on.

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The 2007 Index of Economic Freedom measures 157 countries across 10 specific factors of economic freedom. The idea of producing a user-friendly “index of economic freedom” as a tool for policymakers and investors was first discussed at The Heritage Foundation in the late 1980s. High scores approaching 100 represent higher levels of freedom. Chapter 3 explains these factors in detail. The higher the score on a factor. In other words. The objective of the Index is to catalog those economic institutions in a quantitative and rigorous manner. It also identifies the variables that comprise economic freedom and analyzes the interaction of freedom with wealth. Yet the Index is more than a simple ranking based on economic theory and empirical study. To this end. the lower the level of government interference in the economy. The goal then. Yet modern scholars of political economy are rediscovering the centrality of “free institutions” as fundamental ingredients for rapid long-term growth. have been used to study and grade various countries for the annual publication of the Index of Economic Freedom. which are listed below. was to develop a systematic. since the inaugural edition in 1995.Executive Summary ith the publication of this edition. 1 . as it is today. whether democratic or autocratic. Economic theory dating back to the publication of Adam Smith’s The Wealth of Nations in 1776 emphasizes the lesson that basic institutions that protect the liberty of individuals to pursue their own economic interests result in greater prosperity for the larger society. empirical measurement of economic freedom in countries throughout the world. Perhaps the idea of freedom is too sophisticated. but they reaffirm classic truths. the techniques may be new. the decision was made to establish a set of objective economic criteria that. as W popular support for it constantly erodes before the onslaught of populism. The Heritage Foundation/Wall Street Journal Index of Economic Freedom marks its 13th anniversary.

The 10 Economic Freedoms • Business Freedom • Trade Freedom • Fiscal Freedom • Freedom from Government • Monetary Freedom • Investment Freedom • Financial Freedom • Property Rights • Freedom from Corruption • Labor Freedom HIGHLIGHTS FROM THE 2007 INDEX Global economic freedom holds steady. Luxembourg. Ireland. ranked second in the world. and Switzerland. The remaining three are from the Americas: the United States. but there is much room for improvement.3 percentage point from last year. Former British colonies in Asia lead the world in economic freedom. Singapore remains close. led by the United Kingdom. The average economic freedom score is 60. The new methodology uses a scale of 0–100 rather than the 1–5 brackets of previous years when assessing the 10 component economic freedoms. Twelve of the top 20 freest economies are European. which means that the new overall scores are 2 2007 Index of Economic Freedom .6 percent. Canada. The methodology for measuring economic freedom is significantly upgraded. and Chile. which means that the Asia–Pacific region is home to the top three economies. A majority of the freest economies are in Europe. Each region has experienced an increase in economic freedom during the past decade. Hong Kong has the highest level of economic freedom for the 13th straight year. Only five are in the Asia–Pacific region. the second highest level since the Index began in 1995 and down by 0. and Australia is ranked third freest economy in the world.

Inc. whereas Austria and Sweden fell and entrepreneurship is being emphasized in to lower positions. Sec. D.3 percent). the 50–59. which means reflect the new methodology. of each country’s economic policies. This most free using an unweighted average (67. Table 1: Global Distribution of Economic Freedom The top 20 countries have held relatively Scores Category Number of Countries steady. trends in freedom are mirrored closecompare country performances from past years ly across all regions. and sub-Saharan Africa (54. Both of these new Progress is universal across all continents. and readers may note some Americas (62.Across the five regions. Holmes. The main distinguishing accurately. Kim R. The freest economies also have lower rates of unemployment and lower inflation.9 Moderately Free 48 edition of the Index.org/index. scores and rankings for all previous feature of the regions is that Asia–Pacific counyears dating back to 1995 have been adjusted to tries have the highest variance. into the top group (compared to the old methodolmore refined and therefore more accurate. that there is a much wider gap between the Economic freedom is strongly related to heights of freedom in some economies and Executive Summary 3 .1 ogy has been vetted with a new academic advi.7 percent). Europe is clearly the able from the World Bank only recently.. Middle East/North Africa (57.fall below the world average: Asia–Pacific (59.9 Mostly Unfree 59 composition and order of the top 20 economies have 0–49. The methodol. In order to However.good economic performance. meaning that every quintile of less free economies has worse average rates of inflation and unemployment than the preceding quintile has. methodology). Even though the methodology used for 80–100 Free 7 rating economic freedom 70–79. followed at some distance by the punishes others. a new labor freedom factor has been added.C.9 Repressed 20 hardly changed at all. the business freedom factor. categories are based on data that became avail. Japan and Belgium moved heritage. not compared to 2006 scores using the new ond.2 persory board and should better reflect the details cent). at www.9 Mostly Free 23 has been revised with this 60–69. Source: Tim Kane.percent). The world’s freest countries have twice the average per capita income of the second quintile of countries and over five times the average income of the fifth quintile of countries.: The Heritage Foundation and Dow Jones & Company. The other three regions dramatic changes in rankings.5 attention to detail benefits some countries and percent). 2007 Index of Economic Freedom (Washington.ogy. 2007). These relationships hold across each quintile. and Mary Anastasia O’Grady.

” 3 The analysis does not extend to the 1995 edition of the Index because many fewer countries were graded in that year. Iraq. the most prominent being the strong relationship between the level of freedom and the level of prosperity in a given country.4. but the aggregate effect is nil. which are 2. Half are “moderately free” (scores of 60 percent–70 percent). so the overall trend continues to be positive.6 percentage points lower on average due to slightly more extensive price controls and a mild increase in inflation. The bulk of countries—107 economies—have freedom scores of 50 percent– 70 percent. Only 20 countries have “repressed economies” with scores below 50 percent. This decline is caused primarily by monetary freedom scores. not a reflection of the new level of methodological detail. The variation in freedom among all of these countries declined again for the sixth year in a row.9 percent in 2006. previous scores were also revised to be consistent across time.3 THE IMPACT OF ECONOMIC FREEDOM There is a clear relationship between economic freedom and numerous other crosscountry variables. Of the 157 countries graded numerically in the 2007 Index. Thus. although the methodology used for 1 Four countries (the Democratic Republic of Congo. This means that less than one-fifth of all countries have economic freedom scores higher than 70 percent. Another 23 are in the 70 percent range. and the scores of 92 countries are worse. As noted.6 percent free. the decline in global economic freedom is real. 2007 Index of Economic Freedom .2 Among specific economies during the past year. The Democratic Republic of Congo and Sudan were suspended from grading in the 2007 Index because in each case. down one-tenth of a percentage point from last year and down two full points since 1996. down slightly from 60. 4 measuring freedom was revised this year. and half are “mostly unfree” (scores of 50 percent–60 percent). and Sudan) were suspended from grading again this year because of questions about the accuracy of the data reported by each country or about whether the data truly reflect economic circumstances for most of the country. civil unrest or anarchy indicated that official government policies did not apply to large portions of the country. placing them in the “mostly free” category. the past scores for these two years produced the overall highest scores ever recorded in the Index. See For a more detailed discussion. Previous editions of the Index have confirmed the tangible benefits of living in 2 The minor discontinuity in methodology for three factors may have a slight impact on a handful of countries. The typical country has an economy that is 60. “Methodology: Measuring the 10 Economic Freedoms. Even so. Serbia and Montenegro. 1 making them what we categorize as “free” economies.the lows in others that is nearly twice as variable as the norm. the scores of 65 countries are now higher. Serbia and Montenegro and Iraq were suspended because reliable data were not available. see Chapter 3. only seven have very high freedom scores of 80 percent or more. and the standard deviation among scores now stands at 11. Data for suspended countries are reviewed annually to ascertain whether the situation has improved.

Mixing the three scores together is the basis of the fiscal freedom score. more than one-third of countries earn scores of less than 50 percent. MONETARY FREEDOM — 75.1% The worldwide average of the weighted average rate of inflation from 2003 to 2005 is 7. Only 22 countries have notably flexible labor market policies that earn scores of 80 percent or higher. and 110 countries earned scores of less than 50 percent. freedom from government looks at the general government expenditure data that combine all levels of government.8% The top tax rate on individual income averages 31 percent.3% The world average of labor freedom is 62. every one of the 157 countries graded was penalized 20 points for its non-tariff barriers. Meanwhile. Freedom from corruption is the lowest average score among the 10 factors. Burdensome bank regulation still reduces opportunities and restricts economic freedom in the preponderance of countries in all areas of the world. Economic Freedom Score 100 = most free BUSINESS FREEDOM — 62.3 0 50 100 ment spending as a portion of GDP is 31 percent.1 49. The average level of govern1 The global average is based on data for 145 countries that are graded by both the Index of Economic Freedom and the 2007 edition of the World Bank’s Doing Business.9 points this year.2 62. INVESTMENT FREEDOM — 49. starting a business takes an average of 48 days. The average ratio of minimum wage to average wage is 0. more than half of the world’s countries receive a score of less than 50 percent. the average score is 82. although there is also a penalty of up to 20 percentage points for countries that use price controls. FREEDOM FROM CORRUPTION — 41.8% Business freedom is a measure of how free entrepreneurs are to start businesses. TRADE FREEDOM — 64% Tariffs are the primary obstacle to free trade. PROPERTY RIGHTS — 45.2% Government expenditures are the other side of the fiscal intervention coin. and the top tax rate on corporate income averages 27 percent. which promotes economic expansion and enhances overall economic freedom.6% Strong property rights are still a work in progress. Although many Western economies along with Hong Kong and Singapore benefit from secure protection of property rights. Executive Summary 5 .32. reflecting wage.6 41. and other restrictions. The mean weighted average tariff is 8 percent. The average cost of firing equals 54 weeks of salary. Using our equation. LABOR FREEDOM — 62.2 Governments that generate revenue from stateowned enterprises are also penalized.2 75. FREEDOM FROM GOVERNMENT — 70. Using an equation that defines higher freedom with lower taxes and tax rates. Notably.3 percent. 2 In general.8 70. FINANCIAL FREEDOM — 52% The financial freedom factor measures the relative openness of a country’s banking and financial system.6 52 45.1 Bankruptcy proceedings take an average of three years. while getting necessary licenses takes an average of about 215 days. which assigns four-fifths of the score based on weighted average tariffs and a full 20 percentage point reduction for the existence of non-tariff barriers. Globally. hour. Impediments to any of these three components deter business activity and job creation. central government expenditure data are used. and how easy it is to close a business. the average trade freedom score is 64 percent. Only 16 countries earned scores of 80 percent or higher. earning scores of 80 percent or higher. These countries impose few or no restrictions on foreign investment. The total revenue from all forms of taxation (including tariffs) averages 20 percent of country GDP.6% Only 13 countries enjoy high investment freedom. but non-tariff barriers like quotas and bureaucratic delays are also significant impediments.8 percent. Price stability explains most of the monetary freedom score. how easy it is to obtain licenses.9 percent. FISCAL FREEDOM — 82. In grading countries for which general government spending data are not available.THE 10 ECONOMIC FREEDOMS: A GLOBAL GUIDE Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 62. The average price control penalty was 9.2% There has been little progress since last year. earning scores of 80 percent and higher.8 64 82.

This fact suggests that when China and India further open their economies to globalization so that internal economic freedoms are strengthened. This is due to the presence of China and India together.freer societies. The quintiles with higher 2007 Index of Economic Freedom . Chart 6 is another look at the relationship between economic freedom and average per capita incomes. and each subsequent quintile includes the next group of countries. but the fourth quintile alone contains half of the world’s population. Charts 5–8 illustrate four different relationships using a quintile framework. The top quintile of countries is composed of those that are ranked from 1 to 31 globally (Hong Kong to the 6 Czech Republic). Quintiles are not the same as categorical groups (free. the rise in global prosperity is poised for very large increases. triggering further improvements in economic freedom. but those higher GDP growth rates seem to create a virtuous cycle. Chart 4 shows a strong relationship between the level of economic freedom in 2007 and the logarithmic value of the most recent data for per capita GDP using 157 countries as data points. mostly free. Not only is a higher level of economic freedom clearly associated with a higher level of per capita gross domestic product. Chart 5 shows that four of five quintiles have roughly equal populations. Our 13 years of Index data strongly suggest that countries that increase their levels of freedom experience faster growth rates. etc.) and are used here because each quintile is comparable based on the same number of countries.

The lesson from these charts is simple. inflation rates rise on average as economic freedom declines. Countries that are able to reflect the desires of their people for better lives will adopt economic freedom.nomic freedom. Likewise. and countries that repress their people for political reasons will cause economic suffering. economic freedom have dramatically higher incomes per person. In other words. Economic repression is a sad consequence of other events. the claim that the suspension of economic freedom is done for the good of the people is no longer tenable. Charts 7 and 8 show that unemployment rates are higher for each quintile of lower ecoExecutive Summary 7 .

8 2007 Index of Economic Freedom .

7 94.6 76.2 80.0 79.6 81.6 83.6 91.9 89.7 55.5 84.08 77.5 93.2 70.5 79.9 79.1 75.6 81.7 70.8 80.4 62.0 41.3 93.9 40.1 45.2 76.6 74.4 99.5 94.96 68.7 81.4 74.4 95.3 66.1 95.2 51.3 85.8 87.6 70.0 86.8 84.5 76.0 98.00 71.31 79.6 79.69 81.2 67.3 90.3 94.7 89.44 71.33 68.6 76.6 70.0 66.1 89.12 70.5 84.1 79.1 68.0 67.1 92.7 80.6 71.7 89.0 95.7 59.6 86.6 66.6 76.05 78.8 83.2 83.8 87.6 76.8 82.6 69.9 52.9 85.70 88.7 91.9 31.6 61.6 76.Index of Economic Freedom World Rankings Monetary Freedom Economic Freedom 2007 Financial Freedom Business Freedom Property Rights Labor Freedom 93.0 54.8 76.2 73.8 87.1 55.1 78.0 61.4 82.6 76.3 51.53 73.0 77.3 87.3 93.6 83.7 85.5 68.2 74.4 70.98 81.06 76.3 91.3 96.8 73.09 69.5 63.6 97.5 89.7 82.4 79.87 70.43 69.2 72.56 77.6 80.31 79.1 89.6 91.4 78.0 78.65 82.2 79.72 78.7 77.0 92.0 88.0 75.10 72.8 56.0 86.8 53.2 80.0 82.52 70.9 80.7 60.8 76.0 81.1 92.6 64.2 74.1 67.2 69.8 50.8 90.3 94.8 32.0 79.7 85.5 73.3 78.0 95.6 76.31 70.4 61.7 80.4 76.1 74.7 92.9 Investment Freedom 90 80 70 80 70 90 90 90 70 60 70 90 80 90 60 70 90 60 90 70 80 70 70 40 70 70 70 50 70 50 70 60 70 70 60 2007 Rank Country 90 50 90 80 80 90 90 80 70 70 70 90 90 80 70 80 80 50 50 70 70 80 70 70 70 50 80 60 70 50 80 70 30 60 70 90 90 90 90 90 90 90 90 90 90 90 90 90 90 90 90 80 70 90 90 90 50 70 80 90 70 70 90 50 90 70 30 70 60 30 Executive Summary .3 88.7 76.8 94.2 80.8 95.6 74.55 74.2 76.1 80.6 76.6 79.4 70.6 75.6 99.0 83.2 84.2 77.1 77.9 9 Trade Freedom Fiscal Freedom Freedom from Government Freedom from Corruption 83 94 88 76 96 86 74 85 91 84 73 64 95 86 97 96 74 73 82 57 92 48 38 70 87 59 70 69 42 89 43 29 59 42 23 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 Hong Kong Singapore Australia United States New Zealand United Kingdom Ireland Luxembourg Switzerland Canada Chile Estonia Denmark Netherlands Iceland Finland Belgium Japan Germany Cyprus Sweden Lithuania Trinidad and Tobago Bahamas Austria Taiwan Spain Barbados El Salvador Norway Czech Republic Armenia Uruguay Mauritius Georgia 89.2 65.9 66.1 47.9 93.5 78.2 91.59 81.0 76.3 88.57 73.9 82.59 72.6 76.9 68.1 90.9 80.1 76.0 78.5 76.2 70.2 81.0 73.0 61.3 85.0 80.4 54.2 74.6 47.6 77.6 86.29 85.33 71.7 52.0 62.9 83.6 74.3 90.0 76.6 54.1 89.0 52.7 73.2 48.3 39.55 81.29 78.0 28.0 46.7 82.52 73.4 75.8 63.1 90.6 76.68 69.6 75.9 53.0 91.13 77.9 84.43 71.0 60.

7 87.5 91.0 62.0 72.8 64.2 49.6 69.2 89.0 72.0 77.9 65.2 76.6 76.8 79.0 82.0 67.3 64.4 88.10 64.0 77.7 59.65 68.6 76.5 86.5 80.1 83.2 50.1 74.26 61.0 80.8 81.5 51.8 79.2 75.9 69.4 82.8 71.8 88.1 60.7 60.7 72.8 62.7 66.66 63.9 96.99 60.5 67.5 60.36 62.56 65.2 56.3 79.58 61.2 59.1 61.0 72.80 66.8 70.6 72.37 68.5 87.0 57.1 78.2 76.4 58.7 74.1 60.3 75.8 80.8 86.85 65.2 92.6 69.6 71.6 79.7 66.1 39.6 99.8 88.6 73.0 70.6 Investment Freedom 70 70 70 50 70 70 50 70 70 50 80 70 40 50 30 70 50 50 50 40 50 50 70 50 70 70 60 50 50 70 60 50 50 30 50 2007 Rank Country 50 50 70 90 80 70 70 50 60 60 60 60 40 60 50 40 60 60 50 60 50 50 50 70 60 60 60 60 50 50 70 60 60 30 40 70 70 70 60 50 50 90 70 70 70 50 30 50 50 50 50 50 50 50 30 50 50 50 30 50 30 30 40 50 50 30 30 30 50 50 10 2007 Index of Economic Freedom .3 74.8 69.4 66.1 63.7 48.7 76.2 73.2 86.9 54.6 92.7 67.1 78.0 57.0 67.2 80.9 73.1 71.5 80.3 77.6 76.2 74.8 Trade Freedom Fiscal Freedom Freedom from Government Freedom from Corruption 50 63 59 58 43 42 66 65 50 75 36 35 51 35 38 42 45 57 63 43 37 47 61 25 50 26 40 35 27 28 24 30 25 49 37 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 Korea.89 83.9 74.3 86.0 79.02 63.5 56.7 85.05 65.2 71.6 81.4 85.5 70.3 70.2 42.6 65.2 73.0 66.9 40.8 83.17 62.1 76.0 90.7 70.70 62.3 85.4 60.8 81.12 64.8 77.0 46.0 78.Index of Economic Freedom World Rankings Monetary Freedom Economic Freedom 2007 Financial Freedom Business Freedom Property Rights Labor Freedom 57.9 63.8 54.1 70.7 81.3 80.8 88.4 68.2 56.40 68.2 83.2 91.6 65.0 77.1 76.6 76.2 81.66 66.5 43.7 94.42 68.0 84.8 72.38 61.1 78.0 89.7 70. South (ROK) Israel Botswana Bahrain Slovakia Latvia Malta Portugal Hungary France Jamaica Panama Malaysia Mexico Thailand Costa Rica South Africa Jordan Oman Namibia Belize Kuwait Slovenia Uganda Italy Nicaragua Bulgaria Peru Swaziland Madagascar Albania Romania Guatemala Tunisia Brazil 68.6 67.4 91.2 61.2 64.6 79.5 66.9 74.76 63.8 99.4 68.2 82.8 32.6 79.80 65.15 66.40 68.3 53.94 63.2 88.2 54.1 69.8 81.2 80.8 99.4 65.8 79.9 85.1 78.1 65.6 76.5 79.0 54.8 63.6 58.7 46.6 41.07 61.1 79.21 67.25 60.3 70.8 63.8 76.0 79.7 87.2 76.0 71.6 60.87 65.2 72.2 75.43 61.7 86.6 80.3 64.2 91.7 71.11 66.1 73.7 74.2 72.6 59.1 37.71 63.8 64.6 82.1 68.0 78.5 64.6 93.1 68.8 79.1 88.4 86.8 80.41 63.6 76.5 78.7 76.6 76.60 63.7 69.6 61.1 76.

65 57.2 78.2 74.5 37.3 54.8 91.5 70.0 77.5 84.8 60.9 76.0 58.3 91.4 51.4 70.9 82.5 59.0 74.55 56.79 58.2 75.9 57.9 48.0 99.1 61.3 83.4 63.4 81.2 67.32 60.54 60.41 59.9 60.43 57.9 45.2 47.4 61.0 58.9 74.35 60.6 51.6 51.1 50.4 77.2 73.7 68.2 63.1 85.3 75.2 53.6 90.20 58.4 71.1 84.1 60.4 65.2 45.2 65.91 57.5 61.5 82.3 85.2 91.3 84.0 71.3 66.2 87.30 59.2 67.12 59.81 56.8 79.6 41.9 92.10 58.4 80.8 66.39 60.84 60.4 85.9 81.3 71.4 67.2 68.0 86.77 58.6 87.6 70.5 85.5 83.40 55.8 74.1 73.41 58.6 87.2 75.2 58.5 56.2 78.4 70.3 67.9 85.6 59.2 78.4 69.3 77.8 95.16 58.8 54.1 78.0 67.27 60.9 81.7 89.2 66.8 67.6 31.6 76.6 65.15 57.0 64.8 86.7 83.0 70.7 89.0 57.1 58.9 67.6 48.9 87.1 44.2 80.6 Investment Freedom 50 30 50 30 30 50 30 60 40 30 30 50 50 30 30 50 50 50 50 50 50 50 50 50 50 70 30 30 50 50 50 50 50 40 40 2007 Rank Country 60 50 60 40 60 70 70 60 50 60 50 50 50 40 40 50 50 50 40 60 50 50 60 40 40 40 50 40 60 40 50 50 50 30 70 30 50 30 40 30 30 30 30 30 30 50 40 50 50 50 50 50 70 30 40 50 40 30 50 30 30 30 30 30 30 30 30 30 50 30 Executive Summary .1 86.33 59.3 73.1 85.4 45.3 71.2 52.0 54.9 79.9 71.6 76.4 70.0 82.3 89.8 54.2 65.54 56.7 81.0 66.4 85.0 81.4 56.2 56.1 72.52 60.47 59.47 57.3 56.5 56.75 56.87 59.4 63.9 80.0 95.9 64.9 63.2 97.2 85.2 53.0 71.0 60.2 69.2 69.5 88.0 70.91 56.4 70.5 74.0 93.6 73.73 60.5 94.2 74.60 55.4 63.65 57.2 72.1 48.0 76.6 76.4 99.5 74.35 56.7 46.1 82.7 99.5 86.2 62.4 49.9 82.9 56.6 56.4 61.9 76.4 55.6 61.6 57.9 48.3 90.0 74.4 70.4 65.1 72.9 60.1 74.1 74.4 11 Trade Freedom Fiscal Freedom Freedom from Government Freedom from Corruption 27 59 40 62 26 26 31 30 23 40 29 21 35 32 34 32 34 30 21 25 40 26 27 43 28 32 25 21 21 30 28 23 29 29 19 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 Macedonia Qatar Colombia United Arab Emirates Kazakhstan Honduras Lebanon Mongolia Kyrgyzstan Fiji Moldova Kenya Turkey Sri Lanka Saudi Arabia Senegal Poland Cape Verde Pakistan Guyana Ghana Zambia Gambia Greece Argentina Morocco Philippines Tajikistan Paraguay Dominican Republic Mozambique Cambodia Tanzania India Ivory Coast 60.80 59.8 66.8 49.5 73.0 74.7 54.6 69.0 78.3 77.0 60.0 53.9 55.8 80.3 72.0 57.4 86.4 74.7 36.4 61.7 49.Index of Economic Freedom World Rankings Monetary Freedom Economic Freedom 2007 Financial Freedom Business Freedom Property Rights Labor Freedom 58.4 70.9 79.2 47.3 74.4 70.

5 90.2 55.5 90.5 66.2 60.79 54.3 93.3 66.9 59.2 54.2 36.7 70.3 79.33 55.8 57.5 73.7 52.2 51.96 54.4 80.8 71.1 53.1 65.6 81.0 50.6 64.0 45.70 54.9 45.7 66.6 62.8 45.53 53.9 69.0 84.0 89.3 62.5 70.3 45.5 71.1 74.9 76.6 69.4 26.4 67.21 53.6 68.1 80.1 69.7 92.3 82.3 91.0 83.2 74.56 52.7 75.5 76.9 66.6 87.0 62.0 54.9 60.9 53.1 63.9 87.25 52.0 67.7 68.1 42.95 53.2 53.2 87.2 61.7 93.4 68.2 57.2 78.0 70.5 77.0 65.8 80.3 90.6 77.5 Trade Freedom Fiscal Freedom Freedom from Government Freedom from Corruption 28 22 25 34 22 30 25 34 29 29 22 22 34 32 24 25 27 29 24 26 30 34 19 29 30 19 22 32 28 18 21 30 26 30 33 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 121 122 123 124 125 126 127 128 129 130 131 132 133 134 135 136 137 138 139 140 Malawi Azerbaijan Ecuador Croatia Indonesia Guinea Bolivia Burkina Faso Benin Bosnia & Herzegovina Ethiopia Cameroon Lesotho China Russia Nepal Yemen Mali Niger Ukraine Mauritania Egypt Equatorial Guinea Gabon Djibouti Nigeria Uzbekistan Suriname Algeria Haiti Rwanda Central African Rep.2 61.6 44.6 69.06 54.8 80.4 52.36 55.4 56.7 88.9 44.4 55.9 45.0 57.9 85.4 72.0 68.70 53.6 85.4 41.5 39.0 44.0 74.5 77.3 70.2 47.01 53.0 79.4 58.8 45.0 59.6 52.6 71.7 49.1 37.6 85.7 79.6 91.4 54.7 47.3 88.0 37.4 44.0 37.44 54.83 49.14 54.79 53.4 73.6 50.99 54.1 83. Vietnam Togo Laos 55.9 69.1 84.1 38.7 39.4 56.2 52.43 54.1 66.6 82.15 54.57 52.3 47.7 86.3 47.97 52.0 76.4 55.13 50.7 37.0 88.4 74.4 58.5 51.25 53.9 63.6 59.1 48.3 86.5 90.50 55.2 54.9 78.2 80.5 53.32 55.6 46.6 83.8 65.6 68.27 49.2 53.2 85.0 56.95 49.2 55.57 52.7 73.7 75.4 76.6 70.5 49.0 86.5 62.6 67.3 42.0 70.0 69.5 75.2 54.8 74.2 76.20 52.5 89.63 52.2 84.6 53.9 95.9 77.8 90.9 57.2 80.3 72.8 82.6 52.5 53.7 43.08 55.4 76.6 62.7 37.0 53.5 81.8 77.2 57.Index of Economic Freedom World Rankings Monetary Freedom Economic Freedom 2007 Financial Freedom Business Freedom Property Rights Labor Freedom 72.6 51.8 59.25 52.8 79.0 77.7 79.4 41.6 89.0 58.1 82.35 53.1 51.9 62.02 54.8 79.0 73.4 73.8 69.3 Investment Freedom 50 30 30 50 30 30 30 40 30 50 50 50 30 30 30 30 50 50 50 30 60 50 30 40 50 30 30 30 50 30 30 40 30 30 30 2007 Rank Country 50 30 60 60 40 60 60 50 60 60 20 60 50 30 40 30 30 40 50 50 50 30 60 40 60 50 20 30 20 40 40 40 30 30 20 40 30 30 30 30 30 30 30 30 10 30 30 40 20 30 30 30 30 30 30 30 40 30 40 30 30 30 50 30 10 30 20 10 30 10 12 2007 Index of Economic Freedom .5 58.3 81.6 86.5 35.1 79.3 82.8 38.

heritage.9 25.5 56.8 73.54 40.2 33.2 44.8 - Investment Freedom 30 30 30 20 20 30 40 40 20 10 30 10 10 10 30 10 10 2007 Rank Country 40 10 20 40 10 30 50 40 40 10 30 10 10 20 20 10 - 10 30 30 30 20 30 20 20 20 10 10 10 10 10 10 10 10 Source: Tim Kane.0 50.4 68.4 44.80 47.0 20.38 45.3 83.5 91.4 87.5 66.2 57.4 83.2 49.4 30.8 30. Executive Summary .0 84. Holmes.7 61.37 48.14 35.7 80.8 68.5 40.68 3.2 71.36 46.9 59.6 90.6 60.9 38.47 43.6 64.0 43.5 69.2 - 82.0 - 72.2 40.C.00 42.0 81.7 57.77 46.3 77.9 68.6 61.8 56.9 20.9 65.48 29.0 - 50. at www.3 48.81 34.3 65. Kim R..2 50.0 20. and Mary Anastasia O’Grady.org/index.8 62.1 27.9 80.0 20.9 65.8 - 83.0 57.: The Heritage Foundation and Dow Jones & Company.6 29.7 55.9 56.17 47.3 89.Index of Economic Freedom World Rankings Monetary Freedom Economic Freedom 2007 Financial Freedom Business Freedom Property Rights Labor Freedom 40.4 78. North (DPRK) 48.9 23.9 60.2 94.8 42.7 87.0 13 Trade Freedom Fiscal Freedom Freedom from Government Freedom from Corruption 24 34 17 23 26 23 17 10 20 29 23 18 18 26 25 38 10 141 142 143 144 145 146 147 148 149 150 151 152 153 154 155 156 157 Sierra Leone Syria Bangladesh Venezuela Belarus Burundi Chad Guinea-Bissau Angola Iran Congo.9 88.1 77.9 40.7 61.0 10.0 48.9 79.71 43.00 50.2 20. 2007 Index of Economic Freedom (Washington. 2007).9 68.4 67.9 54.0 64.6 54.13 43.8 54.0 88. Inc.4 59. D.7 47.0 42.5 10.7 88.2 62.8 57.9 82.4 74.0 56. Republic of Turkmenistan Burma Zimbabwe Libya Cuba Korea.2 37.2 52.68 47.5 87.

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2 How could it be true that globalization has helped rather than hurt the world’s poor? Xavier Sala-i-Martin. org/reports/global/1999/en/. Noam Chomsky declared that “Inequality is soaring through the globalization period—within countries and across countries. in his own words. “The Rich Get Rich and Poor Get Poorer. for example. Comparing countries and comparing individuals within those countries is akin to the classic problem of mixing apples and oranges.” The New York Times.undp. August 15. Right? Let’s Take Another Look. Many critics have assailed globalization as a form of extreme capitalism that is leaving the world’s poor behind. Here. At a conference in the fall of 2001. people in the richest countries had 30 times the income of the poorest 20%— in 1997. Human Development Report 1999. In 1960. a professor of economics at Columbia University. he reviews the latest evidence. is a renowned expert on economic growth who in recent years has published authoritative research on global incomes.” countless studies offer conflicting conclusions about overall poverty rates and income inequality worldwide. the 20% of the world’s 1 Virginia Postrel. 2002.Chapter 1 Global Inequality Fades as the Global Economy Grows Xavier Sala-i-Martin In this “age of globalization. at http://hdr. and that is what Professor Sala-i-Martin does with powerful lessons for all of us. The correct analysis is to integrate apples and apple trees. All observers agree that the rapid integration of international economies is one of the dominant experiences of the post–Cold War world. He notes that the confusion about growing global inequality among individuals is based on a logical misunderstanding. which claims that: Gaps in income between the poorest and richest countries have continued to widen. however. 15 . — The Editors 2 United Nations Development Programme. such anti-globalization activists rely on the United Nations Development Programme’s Human Development Report for 1999. 74 times as much.”1 To substantiate their claims.

Looking at the planet as a whole. “Inequality and the Distribution of Personal Income in the World: How It Is Changing and Why. Steve Dowrick and Muhammad Akmal. Looking at the world distribution of income (WDI). MEASURING POVERTY The empirical literature on cross-country convergence shows that the dispersion of incomes per capita across countries tends to increase over time. the weighted variance declines. however. 11. However. along with the negative growth experienced by the majority of Africans. Although this is certainly good news. as opposed to the simple variance of the log of income per capita. even though Africa has around 35 independent states. The positive economic income growth experienced by billions of Asian citizens. individual income inequalities have been falling. 16 of China’s per capita income is more important than the evolution of Lesotho’s because China has a lot more people.” Journal of Population Economics. and this is rooted in the fact that China. or whether inequalities across citizens are growing over time. 307–344. 3 Countries are useful units if we want to test growth theories because many of the policies or institutions considered by the theories are country-wide. pp. which used to be an essentially Asian phenomenon. This effect was reinforced in the 1990s when India. Paul Schultz. and this is the first time they have fallen since the eve of the Industrial Revolution. difficult to measure because of the arduousness of collecting data. how poverty rates have changed over the past few decades. 100. The country analysis of the traditional convergence literature does not help to answer such questions as how many people in the world live in poverty. 223–251. No. Australian National University. No. China has almost twice as many citizens as all African countries combined. the continued deterioration of the economic situation of African countries is pushing up our measures of poverty rates and head counts in that continent. into an essentially African problem. a factor that needs to be included if sensible estimates of the WDI are to be constructed. Using population-weighted distributions of per capita income (from national accounts) is a step in the right direction. of course. and debate concerning the proper unit of measures of both poverty and inequality. which gives the same weight to all countries regardless of population. pp. “Convergence. In fact. 2007 Index of Economic Freedom .” mimeographed.4 the weighted variance increases for most of the 1960s and 1970s but peaks in 1978. These measures still miss within-country dispersion. 4 T. Poverty and inequality are. After that. has turned poverty. alongside these positive global trends. The striking result is that the weighted variance does not increase monotonically over time. A better measure of the evolution of personal inequality is the population-weighted variance of the log of income per capita. has experienced large increases in per capita income. “Contradictory Trends in Global Income Inequality: A Tale of Two Biases. a phenomenon that Robert Barro and I have called σ-divergence. never in history has poverty been eradicated so rapidly as it has been during our lifetimes. There is no reason to downweight the well-being of a Chinese peasant relative to a Senegalese farmer just because China’s population is larger than Senegal’s. with another 1 billion inhabitants. but it is not sufficient to provide accurate estimates of concepts like poverty rates or indexes of income inequality. Barro and Xavier Sala-i-Martin. As shown by T. started its process of rapid growth. March 2003. 2 (April 1992). the mounting empirical evidence points to significant improvements in these two dimensions over the past two to three decades. then the correct unit is a person rather than a country: The evolution 3 Robert J. Moreover. Vol. the world is a better place. Paul Schultz and by Steve Dowrick and Muhammad Akmal. 3 (1998). If we are interested in whether poor people’s standards of living improve more rapidly than rich people’s. Vol. the analysis presented in this discussion also shows that. The aggregate numbers have never looked better. the ambiguity of the definition of poverty. with 20 percent of the world’s population.” Journal of Political Economy.

Although these surveys contain a large amount of information about the distribution of income (or expenditure) within many countries. Vol. “A New Data Set Measuring Income Inequality. “A New Data Set Measuring Income Inequality. in terms of inequality.” 9 Sala-i-Martin. researchers would conclude that no poor citizens lived in that country. 565–591. 2 (May 2006). I use the purchasing power parity– adjusted GDP per capita from the Penn World Tables. however. which we will use as the mean of each country’s distribution. because such information is not readily available—but there is hope. many years are missing. 121. 351–397. they would tend to find dramatic declines in poverty rates as the income per capita of very populated countries grew from a few dollars below to a few dollars above the poverty line.7 One could anchor the country distributions to other measures of average income.9 Charts 1 and 2 report the estimates of the density function for some of the largest countries as well as WDI for 1970 and 2000.” Quarterly Journal of Economics. Robert Summers. then one would have to “forecast” the means for missing years. Center for International Comparisons at the University of Pennsylvania. No. and Bettina Aten. 10 (1996). this information can and should be used to complement the population-weighted national accounts and to construct estimates of the WDI. The mean of the distribution can be complemented by adding within-country information on income distribution contained in microeconomic income surveys reported by Deininger and Squire8 and extended with UNU-WIDER compilation. Klaus Deininger and Lyn Squire.” 17 MEASURING THE WORLD DISTRIBUTION OF INCOME I construct a WDI by estimating an annual income distribution for each of 138 countries and then integrating these country distributions 5 Klaus Deininger and Lyn Squire. Non-parametric kernel density analysis is used to determine annual income distribution data for the various countries. a widely used measure of poverty that will be discussed below. Since surveys are not available every year. For convenience. such as the mean income from surveys.” World Bank Economic Review. National accounts data. If the per capita income in a country were a couple of dollars above the poverty line. on the other hand. and for the countries for which surveys do exist. researchers recognize that different countries have different population sizes. they are still incomplete.5 and the United Nations University’s World Institute for Development Research (UNU-WIDER) keeps an update of this collection. for example.By using population weights. I choose not to do so for a variety of reasons. however. Vol. Surveys do not exist for a number of economies. Period. 7 Allan Heston. if one used the mean income of those surveys to anchor the mean of the distribution. This can yield misleading results.1. Similarly. pp. Penn World Table Version 6. Chapter 1 . “The World Distribution of Income. pp. for example. while the true individual inequalities could be rising if withincountry inequalities increased sufficiently. are reported by the Penn World Tables for all countries during our sample period. respectively. Once a distribution of income has been estimated for each country/year. “The World Distribution of Income: Falling Poverty and…Convergence. but this alone is insufficient because it still implicitly assumes that all citizens of a country have the same level of income. population-weighted indexes of inequality could show a decline in overall global inequality. Additionally. the charts also include a vertical line representing the equivalent annual income of $1 per day. As a measure of income. including (but not limited to) the lack of survey data for many countries and time periods. December 2002. Nevertheless. 6 Xavier Sala-i-Martin. for all levels of income. 8 Deininger and Squire. Incorporating information about withincountry income dispersion is problematic. collected data from a large number of microeconomic surveys conducted in a variety of countries over a period of 30 years. I construct an annual world distribution of income by integrating all of the country distributions.6 The starting point of the analysis is the population-weighted income per capita.

some attempted to define poverty in terms of a minimum required caloric intake. and that the absolute area to the left of the poverty line also diminishes. It is now apparent that the distribution shifts rightward.An interesting aspect of the charts is that one can visually appreciate that a substantial part of individual income inequality across the world comes from differences in per capita incomes across countries rather than differences within countries. Third. Other analysts define poverty in monetary terms: Poor people are those whose income (or consumption) is less than a specified amount. This. 1980. the WDI has shifted to the right. A quick comparison of Chart 1 and Chart 2 reveals the following features. we observe that a major change occurs in China. The first problem we encounter. For a long time. however. 1990. the difference between the mean of the United States and China) seems to be much larger than the differences between rich and poor Americans or rich and poor Chinese. whose distribution both shifts dramatically to the right (China is getting richer) and increases in dispersion (China is becoming more unequal). so precise measures of income inequality will have to be used if we want to discuss the evolution of inequality over the last three decades. Second. Again. and 2000. Some attempts have been made to reconcile the two 2007 Index of Economic Freedom . of course. the distance between country distributions (say. reflects the fact that per capita GDP is much larger in 2000 than in 1970. analysts identified poverty with the lack of physical means for survival. is defining what we mean by poverty. we can use it to estimate poverty rates and head counts. which indicates a reduction in poverty rates. implying 18 that the incomes of the majority of the world’s citizens increased over time. DEFINING POVERTY Once we have a good estimate of the WDI. It is also clear that the fraction of the overall area that lies to the left of the poverty line declines. Chart 3 plots together the global distributions (without individual country functions) for 1970. which indicates an overall reduction in the number of poor citizens in the world. it is not visually evident whether the WDI is more dispersed in 1970 than in 2000. To see the evolution of the WDI over time. First. if we analyze the reasons for the WDI’s change in shape. In other words. the chart does not show clearly whether world income inequality increased or decreased. Thus.

The fundamental problem is that the answers to all these questions deliver many possible definitions. however. we use four different lines. Poverty rates can then be computed by dividing the total number of poor by the overall population. Even if we agree that poverty should be defined in monetary terms. to some extent. there is no agreement on the level of income below which people are poor. The World Bank uses both $1-a-day and $2-a-day lines. Surjit Bhalla settles in the middle and prefers $1. 2002). D. The first is the most widely publicized poverty line: the World Bank’s $1-a-day line. One Poverty Line: Proposing A New Standard for Poverty Reduction. 2003. at what level of income (or consumption) do we say that a person is poor? For example.11 An additional problem concerns the “baseline year. In other words. Center for Global Development.50 per day. we need to specify a particular poverty line in constant prices—but with which baseline? The lack of precision as to what baseline year a particular definition applies has enormous implications for estimates of pov10 Surjit S. “One World. and given that our baseline year is 1996. then the number of poor people in the world can be readily estimated by integrating the estimated WDI from minus infinity to a predetermined income threshold. One World Bank. Imagine There Is No Country (Washington. as explained above.10 Lant Pritchett is more extreme and argues that the poverty line should be put at $15 per day. known as the poverty line. If we settle on a poverty line. All of them are reasonable and. POVERTY ESTIMATES Since. Since the World Bank’s original poverty line was expressed in 1985 prices. The survey data used to construct our WDI 19 Chapter 1 .definitions by putting a monetary value on the minimum caloric intake.: Institute for International Economics. the poverty line used by the United Nations when it first proposed the Millennium Goals was $1 a day. 11 Lant Pritchett.” If we are to compare poverty rates over time. arbitrary. erty rates and head counts and their evolution over time.” mimeographed. we would define a poverty threshold. the difference between the number of people who live with less than $340 and the number who live with less than $495 is in the hundreds of millions. the corresponding annual income in our analysis is $495.C. Bhalla.

using the $3-a-day definition ($1. the poverty rate was 47 percent in 2007 Index of Economic Freedom .140 a year). it is believed that the rich tend to underreport their income relatively more than the poor do. during the same period. the poverty rate declined from 15. the poverty rate declined by a factor close to 3.5 billion. biases poverty estimates downwards. from 700 million to a little less than 400 million.4 percent of the world population in 1970 to 5. although it is not clear whether there are biases in the trend. or 54 percent.140 per year (which is twice $570. a decline of 400 million.are said to include systematic errors. Using the $1. In other words. world population increased by almost 50 percent. Our estimates of $1 a day are between 33 percent and 40 percent lower. Finally. a decline of a factor close to 3.50-a-day line. we call this the $3-a-day line). Bhalla argues that this bias is best corrected not by using survey means. we get an annual income of $570.7 percent in 2000. we see a similar picture.50a-day line. Imagine There Is No Country. a decline of a factor of almost three. It is interesting to note that the total number of people whose income is less than $1 a day is nowhere near the widely cited number of 1. The poverty head count declined by about 300 million people. If this is the case. since $570 was labeled the $1. as we do here. We finally report two additional poverty lines: an annual income of $730 (roughly $2 a day in 1996 prices) and $1. 20 billion to 5. as done by the World Bank. Using the original World Bank definition ($495 annual income).5 12 Bhalla. a decline of 50 percent. The poverty rate fell from 20 percent to 7 percent. In particular. but by adjusting the poverty line by roughly 15 percent. the total number of poor people declined by about 56 percent in a period during which world population increased by 50 percent.12 If we increase the $495 poverty line by 15 percent. This is especially impressive given that. then reanchoring the survey mean to the national accounts mean. from 3. the poverty rate was close to 30 percent in 1970 and a little below 11 percent in 2000. With the $2-a-day definition ($730 a year). The number of people whose income was less than $2 a day was just above 1 billion in 1970 and about 600 million in 2000.2 billion. The implication is that the total number of poor citizens went from 534 million to 322 million. Again.

Poverty rates were cut by more than one-half between 1970 (poverty 21 Chapter 1 . pp. the poverty rate increased from 35. and 48. The overall poverty head count declined by more than 400 million people. had practically eliminated poverty by 2000. Africa accounted for only 14. By 2000. This is not to say that the other countries in the region did not improve. This disappointing performance. sub-Saharan Africa is the third most populated region in our data set. with 1.4 percent. The poverty head count was reduced by over 300 million.5 percent in 2000.3 billion people in 2000. it accounts for 67. With a total population of just over 608 million. despite the fact that Africa accounts for only 10 percent of the world’s population.8 percent of the world’s poor. which accounts for 251 million people escaping poverty.13 Although China is an important part of this success story with a decline in the poverty rate from 32 percent in 1970 to 3. Thailand. In fact. by 2000. together with the great success of the other two poor regions of the world (East Asia and South Asia) means that the majority of the world’s poor now live in Africa.1970 and 21 percent in 2000—again. accounting for 30 percent of world population.1 percent in 2000. “How Did the World’s Poorest Fare Since the Early 1980s?” World Bank Research Observer. In all. regional trends vary. Today. Overall. has become an essentially African phenomenon. The three decades have been almost equally terrible.8 percent in 2000. once an essentially Asian phenomenon. With close to 500 million people—about 9 percent of the world’s population—Latin America has had a mixed performance over the past three decades.1 percent in 2000. South Asia is the second most populous region in the world. 43. As noted. with a poverty rate over 23 percent in 1970. the only country in which the poverty head count increased was Papua New Guinea. poverty head counts increased in all countries with the exception of Botswana. and the islands of Mauritius. the World Bank estimates that $1-a-day consumption poverty in China fell from 53 percent in 1980 to 8 percent in 2000. Vol. and the Seychelles. 2 (2004). 19. Within Africa. Poverty rates in East Asia were close to one-third in 1970.7 billion people in 2000. With the exception of Nepal. a healthy decline over the past 30 years.2 percent in the 1970s. 54 percent of the world’s poor lived in East Asia. 141–170. between 1970 and 1980. poverty. given its large size and the remarkable rate at which it has reduced poverty. Indonesia’s poverty rate declined from 35 percent in 1970 to 0. Indeed. Most of the decline in the poverty head count can be attributed to the success of the post-1980 Indian economy. all of the other countries also experienced a positive evolution of overall poverty. poverty rates in East Asia were cut by a factor of 10.2 billion in 2000. With over 1.6 billion in 1970 to 1. or 24 percent of the world’s popula13 Shaoua Chen and Martin Ravallion. The exact growth of income per capita in China is a key determinant of the reduction of worldwide poverty. from 350 million in 1970 to 41 million in 2000.1 percent to 37. from 1. By 2000. The great Asian success contrasts dramatically with the African tragedy. 41 countries are analyzed. In 1970. Most of them had such dismal growth performances that poverty increased throughout the continent. No. poverty rates had declined to a little less than 2. the poverty rate fell from 30 percent in 1970 to 2. In other words. it is by no means the whole story. tion.7 percent in 1990. all of the countries in this region experienced reduction in poverty rates. poverty rates in 1970 were similar to those in South Asia and East Asia at 35 percent. with one exception. REGIONAL TRENDS IN POVERTY RATES Despite the overall decline of global poverty rates. East Asia is the world’s most populous region. Cape Verde. Using only survey data. The evolution of poverty in South Asia is similar to that in East Asia.4 percent.5 percent of the world’s poor in 1970. poverty rates in Africa had reached close to 50 percent. while those in Asia had declined to less than 3 percent. this fraction had fallen to only 9. the total number of poor Indians actually increased by 15 million. the Republic of Congo.

which measure inequality. Our final region is Eastern Europe and Central Asia. A lot has been written about the deterioration of living conditions in this region after the fall of Communism.3 percent in 1970. Poverty rates in MENA countries have declined over the past three decades. the inequality across individuals that would exist in the world if all citizens in 14 United Nations Development Programme. the rate remained at 0. It did not change at all during the 1980s and then more than doubled during the decade that followed the fall of Communism.7 percent of the world’s sampled population in 2000. The rate.3 percent) and 2000 (poverty rate of 4. Although the starting point was better than those for East Asia. policymakers have joined the debate.1 percent in 2000. org/reports/global/2001/en/. however. For example. MENA has nevertheless managed to reduce those rates even further. but the starting level was so small in magnitude that.” Although it is true that within-country inequalities are increasing on average. at http://hdr. where poverty rates were well above 30 percent in 1970. analysts go to the convergence/divergence literature and show that the Gini coefficient of per capita GDP across countries has been increasing unambiguously over the past 30 years. and subSaharan Africa.” • Conclusion: “Global income inequalities have also increased. the level of income in this region was so high to begin with that poverty rates were a lot smaller than they were in any of the regions analyzed up until now. had declined to 0.7 percent in 1980. is that. which includes the USSR and (after 1990) the former Soviet Republics. which was at the already low level of 1. instead.3 percent in 1970 to 1. Our sample of Middle Eastern and North African (MENA) countries has 220 million people.” To document Claim 1.undp. About 436 million people inhabited this region in 2000. This increasing difference in per capita income across countries is a well-known phenomenon that empirical growth economists call “absolute divergence. or 7. The fact. The reason is that Claim 1 refers to the income of “individuals” and Claim 2 refers to per capita incomes of “countries. This mixed performance has meant that.” By adding two different concepts of inequality to analyze the evolution of world income inequality.1 percent in 1990. The increase in poverty was the result of both a decline in per capita income and an increase in inequality within countries. Recently. the United Nations Development Programme (UNDP) argues that global income inequality has risen based on the following logic:14 • Claim 1: “Income inequalities within countries have increased.2 percent).” • Claim 2: “Income inequalities across countries have increased.8 percent by 2000. It then increased to 3. although Latin America started from a superior position relative to both East Asia and South Asia.rate of 10. CONVERGENCE.4 percent by 1980. although poverty has increased since 1990. The argument would be correct if the concept of inequality implicit in Claim 2 was not the level of income inequality across countries but. the poverty rate in Latin America grew from 3 percent in 1980 to 4. They notice that the Gini “increased in 45 countries and fell in 16. Human Development Report 2001. the UNDP falls into the fallacy of comparing apples to oranges. PERIOD! Researchers have long worried about world income inequality. and although it is also true that income per capita across countries has been diverging. Little progress has been achieved since then. analysts collect the Gini coefficients. in its 2001 Human Development Report. for a number of countries. despite its doubling. we see that poverty rates were larger in Latin America than in both Asian regions by 2000. South Asia.7 percent in 1990 and 4. This would be an optimistic picture were it not for the fact that all of the gains occurred during the first decade.” To document the second claim. The fraction of the world’s poor that live in Latin America declined from 4. Indeed. the conclusion that global income inequality has risen does not follow logically from these premises. 22 2007 Index of Economic Freedom .

The problem for the UNDP is that population-weighted measures of income inequality show a downward trend over the past 20 years. the decline in inequality is also reinforced. Slowly. For example. We could say that in 1820.15 What caused this reversal? The answer is the growth rate of some of the largest yet poorest countries: China. 3–17. The dramatic growth rates of China. We should not conclude. if rather than considering GDP per capita across countries we analyze the incomes of individual citizens. more than offsets the population-weighted average increase in within-country individual inequality. excluding 1. the remaining incomes have obviously diverged. if we exclude the United States (5 percent of the data points) from the analysis. then. In sum. “Divergence. 727–744.” Journal of Economic Perspectives. we are well equipped to answer this question. They are driven by China—and all of the other people of the world. the correct measure would weight by the size of the country. If we instead exclude the people of Africa (Africa has a total of 41 countries but. the whole world was poor. 11. world income inequality had increased continuously over the preceding century and a half. Since we have estimated the WDI. and the rest of Asia. No. we could say that our analysis shows that. However. as suggested by the UNDP reports. India. “Inequality Among World Citizens: 1820–1992. Big Time. This change in trend is surprising because. This is true: They increase by 4. India. correctly weighted by population. the correct decomposition of inequality into “within-country” and “acrosscountry” components reflects that withincountry inequality increased over the sample period. Moreover. The question.” American Economic Review.each country had the same level of income but different countries had different levels of per capita income. eliminating 22 percent of the data points (that is. and the rest of Asia from the 1970s meant that the incomes of 3 billion to 4 billion people started to converge with those of the OECD. according to François Bourguignon and Christian Morrison. 3 (Summer 1997). global income inequality started a two-decades-long process of decline.58 billion citizens out of 5. In other words. This reduced worldwide income inequality for the first time in centuries because it more than offset the divergent incomes of 608 million Africans. Lant Pritchett famously described the evolution of income per capita across countries with the expression “divergence. this is not an exception: If we exclude the incomes of 22 percent of the citizens that have converged.66 billion) in any empirical analysis can overturn any result. 15 François Bourguignon and Christian Morrison. the decline in the correct measure of across-country inequality more than offset the first effect and delivered an overall reduction in global income inequality. the incomes of the 1 billion people (in population size in 2000) in what is today the Organisation for Economic Co-operation and Development (OECD) grew and diverged away from the incomes of the 5 billion people in the developing world. the tendency for incomes to converge is reinforced. if we exclude 16 Lant Pritchett. 23 Chapter 1 . The difference is that the correct statement would recognize that there are four Chinese citizens for every American so that the income per capita of China is assigned four times the weight. with 608 million people. that all of our results are driven solely by China. 92. the past two decades have witnessed an unambiguous process of “convergence. pp.”16 Using a similarly spirited expression. Vol. However. Finally. however. after having stagnated during the 1970s. period!” IS IT ALL ABOUT CHINA? Critics have argued that the above results are all driven by China. only half as many people as China and thus accounts for 11 percent of the data points).4 percent. is whether the decline in across-country individual inequality. instead of using a measure of inequality in which each country’s income per capita is one data point. Vol. 4 (2002). worldwide individual income inequalities increase. They argue that when China is excluded from the analysis. No. big time. In 1997. pp. Our analysis shows that.

world income inequality will start to rise again in a few years’ time.140 ($3/day) * World Bank poverty line. (See Table 1. the spectacular reduction of worldwide poverty hides the uneven performance of various regions in the world.575.532 1.485 533.) Second. In other words.2% 30. the United States.343 Change.6% 1975 14.635 321. and grow rapidly.493 -428. Source: Xavier Sala-i-Martin. pp.781 1.789 1.275 1. This force has been larger than the divergence effect caused by the dismal performance of African countries. First.616. but also many other countries in Asia) converged rapidly with the incomes of OECD citizens. and Africa (which overall account for 2.TABLE I: Poverty Rates and Headcounts for Various Poverty Lines Poverty Rates Poverty Line Definition $495 ($1/day)* $570 ($1.5/day) $730 ($2/day) $1.778 327.9% 24.343 -301.9% 15. and the total decline in poverty head counts was between 212 million and 428 million people.3% 34.305.539.069 1. The problem.008.177 1995 5.712 399.” Quarterly Journal of Economics.1% 19.527 548. 121. seems to have moved in the opposite direction.0% 2000 5. “The World Distribution of Income: Falling Poverty and…Convergence.660.0% 10. We have shown that this is also true for all conceivable poverty lines. therefore.379 708.2% 8.945 1.472.896 1. 1970–2000 -0.825 1.01 -0.533 874.115 1. the decomposition of inequality into 2007 Index of Economic Freedom . according to all four poverty lines.0% 16.403 600. Africa.3% 10.7% 7. we still reach the conclusion that world income inequality has decreased over the past three decades. Third.257 -419. East and South Asia account for a large fraction of this success.517.25 Poverty Headcounts (thousands of people) 1970 World Population Poverty Line Definition $495 ($1/day)* $570 ($1.197.861 699.028.691 China. 24 Poverty rates were cut by a factor of almost three.761 1.327.518 398.5% 44.938.7% 1995 6. Vol.902 495.13 -0. the Gini coefficient still declines by 1.514 1980 4.32 percent. 2 (May 2006). defined as the fraction of the WDI below a certain poverty line. inequality declined substantially during the past two decades.7% 1990 7.1% Change. No.5/day) $730 ($2/day) $1.627 671.0% 18.2% 29.140 ($3/day) 1970 15. on the other hand.691.477 1990 4.175.6% 46. 1970–2000 2. We have documented this claim for the four most widely used poverty thresholds.080 -212.032 665. declined significantly over the past three decades.6% 25.184 498.5% 27.415 362.420 1985 4.052.943 424. after remaining constant during the 1970s.3% 1985 8. THE WORLD IS A BETTER PLACE The estimates of a WDI for the 1970–2000 period result in a number of interesting lessons. global poverty rates.8% 12.6% 21.221 798.1 billion people or 38 percent of the data points).187. Fourth. is that unless the incomes of these African citizens begin to grow. The main reason is that incomes of some of the world’s poorest and most populated countries (most notably China and India.681.830.4% 20.0% 12.858 3.772 536.2% 40. Period.19 -0.2% 1980 11. if we exclude the “main convergers” (namely China) and the “main divergers” (Africa and the United States). 1975 3.563 2000 5. 351–397.

“within-country” and “across-country” components reflects that within-country inequality increased over the sample period. Kofi Annan challenged national leaders around the world to adopt the target “of halving the proportion of people living in extreme poverty.”17 Table I shows that the $1. Chapter 1 25 .pdf. and we have seen that the poverty rate in 2000 was 7 percent. and so lifting more than 1 billion people out of it.un.50 per day poverty rate in 1990 was 10 percent. Thus. In 2000. when poverty rates are 5 percent. the world was already 60 percent of the way toward achieving it. The Millennium Development Goals will be achieved. 17 See United Nations Web site at www.org/ millennium/sg/report/ch2. the United Nations established the Millennium Development Goals. therefore. by 2015. the decline in across-country inequality more than offset the first effect and delivered an overall reduction in global income inequality. However. when the goal was established in 2000. The world might just be in better shape than many of our leaders believe.

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native and immigrant citizens alike. That is why a tighter adherence to a failing model will only exacerbate current problems and lead to more unrest in European cities. characterized by vast government intervention in the economy. but are innate to the process of internal economic development and change.” a word that indeed captures the reality of economic and social problems in many European countries. or we look back to the past and continue trying to shield old occupations from international economics. and an anxious debate about the “Polish plumber” representing free flows of labor within the EU. It is a choice between openness and protectionism. We Europeans are clearly at a crossroads. riots raged in the streets of Paris. F Their rhetoric translates into policies that are a new kind of protectionism for traditional jobs. between modernization and nostalgia—indeed. French President Jacques Chirac concluded that his nation was suffering from a profound “malaise. Either we look to the future and learn from successful market-oriented reforms. a protectionism that is reflected in the widespread official resistance to a single European Union (EU) market in services. Every night. Those who finally took to the streets. but many other governments in Western Europe are committed to the same philosophy. After centuries of economic leadership. disapprovals of business mergers. Europe must now face the truth that its governing institutions—especially its labor markets—are deeply flawed. shops were vandalized. were severely affected by unemployment.Chapter 2 The Urgent Need for Labor Freedom in Europe— and the World Johnny Munkhammar or several weeks during the autumn of 2005. between government intervention and freedom itself. France may be the most stubborn defender of the so-called European social model. Presidents and prime ministers devote speeches to nostalgic messages and promise to maintain and protect the existing social model. The problems of Europe are not born overseas. and violence ruled. 27 . hundreds of cars were burned. Rioting and decline is a destiny that no European wants to face.

of all the areas that are still in need of substantial reform. Freedom is just 28 2007 Index of Economic Freedom . and the benefits of globalization—economic growth. In the labor market. voluntary exchange. it is often assumed that there is a fundamental difference between the labor market and other markets. Furthermore. the most important is the labor market. A more profound lesson is that whole societies are similarly superior to others. a broader supply. employment. Almost all European countries can point to at least one successful reform. That principle has several components: free choice. more ideas. In the public debate. Improvements in everyday life on a global scale constantly confirm the textbook theories. Bresnahan and Robert J. It has been estimated that three-quarters of all products today did not exist in any form 100 years ago. in scholarly research or policy debates. better compensated. The globalized economy has enlarged markets and increased specialization. A BMW is better than a Trabant. Gordon. as essential in the labor market as it is in any other market. In my view. Free exchange is good in a town. The Economics of New Goods (Chicago: University of Chicago Press. 1 Joseph Schumpeter ’s point about destruction of the old being a nec1 William D. Never before have so many countries made successful free-market reforms. “Do Real-Output and Real-Wage Measures Capture Reality? The History of Lighting Suggests Not. The addition of the new labor freedom factor to the 2007 Index of Economic Freedom is thus highly relevant. eds. indeed. and consumer prosperity. one might ask: Should bananas have more freedom than workers? Is the market for labor truly unique in the way that critics suggest? My answer is no. not dependence on government. Never before have so many countries been so deeply involved in the global economy. ultimately. and competition—are ever clearer.” in Timothy F. “Bananas can be traded freely in the market. more people that want to create something new.. yielding the best results for society and workers. price reduction. at least in purely economic terms. Nordhaus. Today. which is an inspiration for others.Yet there is reason for optimism. 1997). the future should rapidly become much brighter. just as the free market has proven superior for virtually all other fields. which itself was an innovation two decades ago. we need government intervention. and free competition. a free labor market is increasingly important as a way to make workers more competitive and. and polluting cars made in the former East Germany. and better quality. and as we copy each other’s successes. MARKET PRINCIPLES AND DEREGULATION The core principle of a market is free. A comparison between the free economies in Europe versus the centrally planned economies reveals much. The elements that comprise this new category encompass several common restrictions on freedom that produce consequences for the labor market. better in a country. Innovators and entrepreneurs compete to satisfy consumers. Competition means lower consumer prices. however.” Even assuming there is a difference. government intervention produces the same problems in the labor market that it produces in any other market. and best in every country: more minds. A thousand consumer goods compared over time reveal the relentless impact of competitive pressure for innovation. Consider the DVD disc technology now sweeping away the VHS tape. expensive.” the argument goes. free pricing. “but people are not bananas. People—especially the young—want jobs and freedom. The free market is a superior institution for labor. THE LABOR MARKET AND OTHER MARKETS: A FUNDAMENTAL DIFFERENCE? Critics have difficulty seeing labor as a market like other markets. Finally. the poorly manufactured. in a globalized world. it is generally accepted that the free market leads to constant improvements. it is fundamental to the concept of economic freedom. The free market unleashes creativity and change.

Government interventions in the labor market are not limited to wages or hours. implying greater per capita incomes. Skeptics have long warned that wages and other working conditions will decline in a pure free market. If we had not increased productivity. governments often mandate social insurance systems.” In other words. China 30 percent higher wages on average than old. they also affect hiring and firing practices.org/. the researchers showed that heavy regulations in the labor market produced adverse consequences for employment. (b) to gain political power. industries do? And why did the average 3 Juan C. on average. Rafael La Porta. 29 Chapter 2 . no regulations or trade unions in the world could have created such tenfold wage increases. regulatory structures normally impose costs that are invisible to the public simply because they do not show up on government budgets. and today’s farmers produce more total output. Socialism and Democracy (New York: Harper. the interventions also decide how. November 2004. Finally.2 Some 150 years ago in Western Europe. As prosperity advanced. In various ways. which yield adverse efficiency results. where. The main reason behind most of the interventions. which is why we get more pay. notably collective bargaining. so did the multitude and variety of labor regulations. or (c) as a natural consequence of different legal systems. On the contrary. a competitor will benefit from offering the employees a higher wage.” The Quarterly Journal of Economics. Simeon Djankov. is a perception of reality: the fear of a “race to the bottom. and when people work.ilo. 4 See International Labor Organization Web site at http://laborsta. three-quarters of the population was employed in agriculture versus about 3 percent today. however. such as pensions. governments required better general treatment of workers. per person. preventing “social dumping” motivates intervention. as did other regulations mandating that businesses limit the number of hours each worker could contribute per week. 10 times more value. LABOR MARKET INTERVENTION IN THEORY As the types of work and jobs changed during the Industrial Revolution. Botero. for example. In Western Europe. as well as the material misery of countries that embrace such policies. and Andrei Schleifer. But they did find 2 Joseph Schumpeter. Innovation in economic efficiency is therefore interwoven with the changing composition of the labor force. workplace rules. stateowned. where the labor market is relatively free and only some 10 percent of the labor force are members of trade unions?4 Why else would multinational companies voluntarily pay workers in. Florencio Lopez De Silanes. A 2004 Harvard study of 85 countries empirically tested the three theories and found no support for the efficiency theory. “social dumping” is largely a myth. safety. Those who argue that labor protections are essential for a higher quality of life should ponder this point. Moreover. with what. and even the kind of language allowed. This skepticism has roots in the Marxist notion of capitalism.essary condition for creation of the new is both relevant and visible in society. 1975). Government also affects pricing through taxation and trade union privileges. Unlike many other government programs. We produce. significant support for the other explanations: a clear connection between higher regulation and leftist governments and substantial evidence that legal origin countries have more labor market regulations than common law countries. Capitalism. Thus. A minimum wage became common. Why do governments intervene in labor markets? Three possible explanations are commonly cited: (a) to make the labor market more efficient. which retains its appeal even though economic history has hardly been kind to the theory in practice. “The Regulation of Labor. if wages in a free market are set below productivity. wages are roughly 10 times higher today than they were a hundred years ago because our productivity today is that much higher.3 Countries with more left-leaning governments tend to enact stricter labor regulations. Why else would the world’s highest wages be found in the United States.

14 Organisation for Economic Co-operation and Development. increased by 75 percent. Sweden. 12 European Commission.14 Third. Taxing Wages 2004–2005. Eurostat Web site. the labor market was substantially freer in the countries that succeeded in creating new jobs. 2004).13 Second.eu/portal/page?_pageid= 1996.S. “Working age” between the ages of 15 and 64 really should be redefined because people live very long and healthy lives today. Edwin J.. Youth unemployment is above 20 percent in Greece.. and Denmark.ec. Germany. In Ireland. The U. between 1995 and 2004.C.eurostat. In practice. In Western Europe.: The Heritage Foundation and Dow Jones & Company. The Communist Manifesto.europa. 10 See European Commission.S.10 But the best comparisons can be made within Europe itself. the increase in employment was the highest. not just the rich—since that time is breathtaking. but also workers. average youth unemployment is 17 percent. August 11. 2005). the distortions generated by limiting labor freedom follow suit. 30 Consider that between 1970 and 2003. 7 See European Commission. the Netherlands. but Poland is far lower at 53 percent.eu/portal/page?_ pageid=1996. in Germany and Austria.S. and Italy. 1848. Belgium. In France. Cowboy Capitalism: European Myths. The share of the working-age population employed in EU countries is only 64 percent.C. D. were unable to find a new job within 12 months. RESULTS OF FREE MARKETS VS.7 and this really says little. employment in the U. of course. and Spain. “What US Labor Laws Can Teach Europe.. employment rate is 72 percent. 13 Marc A. Inc.: Cato Institute.8 In 2004. March 29. and it has happened to the largest extent in countries that followed Marx’s and Engels’ recommendations the least.9 In the EU. The global explosion of living standards—for all people. Karl Marx and Friedrich Engels pointed out that capitalism—in 1848—had created more wealth than had been experienced by all previous human generations combined.39140985&_dad=portal&_schema=PORTAL& screen=detailref&language=en&product=STRIND_ EMPLOI&root=STRIND_EMPLOI/emploi/em011.S. is far from a free-market heaven.ec.S. In the U. 2004. at http://ec. the levels of contri8 Olaf Gersemann.12 What were the differences between the successful countries and the others? First of all.eurostat.eu/employment_social/ employment_analysis/employ_2005_en. and Finland and below 8 percent in Ireland. Italy. 5 Nicholas Lardy.wages rise by three times in foreign-owned companies during the past 10 years?5 The desire to make a profit in a free market benefits not only consumers. payroll and income taxes were more than 10 percentage points lower in the five best economies (in terms of job creation) compared to the five worst. 11 Ibid. it is 10 percent. at http://epp. the figure was 44 percent. compared to when the definition was established decades ago. Eurostat Web site. and Mary Anastasia O’Grady. American Reality (Washington.” Financial Times. France. Feulner.39140985&_dad=portal&_schema= PORTAL&screen=detailref&language=en&product= Yearlies_new_population&root=Yearlies_new_ population/C/C4/C42/ccb30992. Miles. INTERVENTION Massive state interventions in the labor market are thus founded on a romantically appealing but scientifically void theory of how the market works.europa. the development of employment was also very different between the countries.europa.htm. and the U.6 but they thought that an elite group of capitalists would eventually capture all the wealth and leave workers poor. in the EU. but its labor market is freer than those found in most of Western Europe. D. Employment in Europe 2005. it was almost zero. 2005 Index of Economic Freedom (Washington. 6 Karl Marx and Friedrich Engels. only 13 percent of unemployed workers in the U. 2005. the Netherlands. They were proven totally wrong. Europe happens to be a very telling showcase for both regulation and deregulation in the labor market. the labor market is often highly regulated. it increased by 26 percent. 9 Diana Furchtgott-Roth. at http://epp.11 In the EU’s 15 member states. Denmark has an employment rate of 76 percent. “Do China’s Abusive Labor Practices Encourage Outsourcing and Drive Down American Wages?” testimony before the Senate Democratic Policy Committee. at http:// 2007 Index of Economic Freedom .

and Denmark enjoy higher scores in labor freedom and have experienced better employment outcomes generally. Table 1 shows all of the nations of Europe.org/document/40/0. D. Kim R.1 48.4 60.7 64.0 69.8 46. 31 Averages EU-15 EU-25 Non-EU Europe Source: Tim Kane.2 66.heritage. 37 percent in EU-15 countries.7 80. 2004.7 60.2 51.com/World_Income_ Distribution.4 62.9 78.2340.7 48. “World Income Distribution 2006/2007.5 70.1 57. and 72 percent in Britain. A look at the results for various countries in the labor freedom category in the Index provides further proof of the connection between labor freedom and employment.7 52.org/index.6 53.7 percent. and Sweden have suffered weak employment and outright stagnation. The income of the poorest 10 percent of the population grew by only 10 percent in Sweden.euromonitor.: The Heritage Foundation and Dow Jones & Company.9 82.4 59.7 71.K. Countries like Georgia.2 54. it is highly regulated and earns a score of 52 percent. compared to the EU-15 average of 59.” at www. MISSOC (Mutual Information System on Social Protection in the European Union).0 70.5 70.9 64.4 61.3 56.oecd.4 64. lower taxes. Portugal. ranked according to their labor freedom scores in the 2007 Index. the U.0 52.7 percent.4 77. In Britain.9 66.16 The worst off were better off where the labor market was freer. including their EU affiliations. whereas in Sweden.1 60. at www. and Mary Anastasia O’Grady.0 45. The 10 countries that recently joined the EU have raised their average labor freedom by nearly a full point. and lower contributions. This www.0 59.Table 1: Labor Freedom in Europe EU15/EU25 EU-15 Nation Georgia United Kingdom Armenia Switzerland Czech Republic Denmark Bulgaria Belgium Luxembourg Cyprus Iceland Russia Hungary France Belarus Latvia Slovakia Romania Moldova Albania Ireland Lithuania Malta Netherlands Macedonia Italy Bosnia and Herzegovina Poland Germany Finland Spain Sweden Croatia Ukraine Estonia Norway Slovenia Greece Austria Portugal Turkey Labor Freedom 99. Countries with low scores like Germany.5 46.4 52.8 51. Italy. Holmes. 15 European Commission. 2007 Index of Economic Freedom (Washington.html.6 57.0 51. compared to 59 percent in Britain. 16 Euromonitor. Inc.en_2649_37427_ 36330280_1_1_1_37427.0 EU-25 EU-15 EU-15 EU-15 EU-25 EU-25 EU-15 EU-25 EU-25 EU-15 EU-25 EU-25 EU-15 EU-15 EU-25 EU-15 EU-15 EU-15 EU-15 EU-25 EU-25 EU-15 EU-15 EU-15 bution from the state for unemployment and sick leave were lower in the best economies.2 58.. the labor market is relatively free and earns a score of 82. 2007).5 61.2 60. but the scores of non-EU economies average nearly five full percentage points higher.1 62. Yet the average income between 1995 and 2004 grew by 29 percent in Sweden. The larger lesson is that Europe’s more “advanced” economies have generally created more complex restrictions on labor freedom in the name of protecting workers. Chapter 2 .2 74.00.1 65.6 60.. Comparing the 15 countries that were members of the EU in 1995–2004 to EU-25 and nonEU countries is illustrative. Switzerland.15 What the successful countries have in common are freer labor markets.C.

Fears of neoliberalism were frequently mentioned. Again. 2005.00. is more complicated. but there is every reason to believe that many of them knew exactly what they were saying. “Employment Patterns in OECD Countries. Trade unions are a cartel dedicated to limiting competition. Reality. Or a labor market regulation demands a minimum wage of 50 euros. but some people seem ready to accept those effects—for example. Or a trade union is allowed to deny your son access to your neighbor’s lawn because he is not a member of their organization. Young people demonstrated under slogans like “Regulation!” despite a youth unemployment rate of 22 percent. A highly simplified image of a local labor market may help to shed some light on causes and consequences. This well-known phenomenon has been referred to as “insiders and outsiders. wants your son’s help to mow his lawn. It is common knowledge that allowing such interventions does produce adverse effects. especially among young people and immigrants. this is also the intention. Boosting Jobs and Incomes—Policy Lessons from Reassessing the OECD Jobs Strategy. having broken a leg. Economics Department Working Paper No. resulting in such outcomes as the Paris riots. June 15–16.oecd. He is prepared to pay 20 euros. And there are several ticking bombs like Paris in Western Europe. 472. The state uses force to raise barriers against free exchange and thereby creates unemployment—all in the name of some “social” policy. org/document/19/0. but this example describes in principle some of the most common barriers created by governments in the labor market. In recent years. 2006. One common experience is a mismatch between labor supply and demand when restrictions and protections are forced onto the market by government. there were massive protests. Again.” Those on the inside are well protected and care more about remaining so than they do about the vast numbers of people on the outside. It is not difficult to understand why such limitations in the name of protection generate widespread youth unemployment and resentment. nothing happens. of course. but the apology is losing its validity as many Eastern and Middle European countries experiment successfully with freedom. Some interpreted this as a lack of understanding among the young French. Despite numerous differences between all countries.” Organisation for Economic Cooperation and Development. there are many common features. The deal (and work) are taxed out of existence. even if others did not. WHY REGULATION CREATES PROBLEMS The problems in the countries with substantial state interventions in the labor market are no coincidence. Organisation for Economic Co-operation and Development. OBSTACLES TO FREE-MARKET REFORM When the government of France proposed a limited deregulation of the labor market. 2007 Index of Economic Freedom . in order to win elections. Imagine that your neighbor. Or suppose the government demands that the service be performed by a public monopoly.en_21571361_36276310_ 36276371_1_1_1_1. which perhaps charges above 20 euros.17 Government interventions in the labor market produce serious negative effects in terms of unemployment. To some extent. June 2006. The result: no job. Many of them were educated and might well have felt certain that they would belong to the privileged group that would have secure jobs in the future. the Organisation for Economic Co-operation and Development (OECD) has published a number of studies that confirm 32 these connections in its member countries.relative wealth has been a convenient excuse for stagnant growth and higher unemployment. Employment and Migration Working Paper No. December 21. 35. “Product Market Reforms and Employment in OECD Countries. Andrea Bassanini and Romain Duval.html. your son is without work.” Organisation for Economic Co-operation and Development. But imagine the state demanding a 50 percent tax. and the neighbor is not willing to pay that much. and your son is willing to do the work for as little as 15 euros. Social. at www. Reassessing the Role of Policies and Institutions. Regulations against firing workers prevent old jobs from being replaced by new ones.2340. They 17 Giuseppe Nicoletti and Stefano Scarpetta.

In turn. But the illusion of certainty is not a strength. In many reforming countries. so they have to live their lives dependent instead on low contributions from the state. though both are likely to increase. and uncertainty is not necessarily a weakness. and in a regulated labor market with few new jobs. High taxes on workers make hiring more expensive and working less profitable. even formerly secure jobs become insecure. but since the current system puts barriers in the way. such people are allowed to work and. unlike their counterparts in regulated countries. Combine that with the possibility of getting contributions from the state for unemployment or sick leave at 80 percent–90 percent of the previous salary. it is hard to find a new one. It has become clear to most politicians that productive activities create wealth.” Instead of deregulating and making work more profitable. the two most common fears are of companies moving out and people moving in. such policies have been labelled “economic patriotism. and jobs will replace the old. these fears are founded on a misunderstanding of the market and the effects of regulation. minimum wages. We can see broadly what kinds of production have increased as traditional 33 FORCE LEADS TO MORE FORCE A central idea of those who favor intervention in the labor market is that people should not work for low wages. To a large extent. Nor does this mean the future is impossible to know. and the result is a so-called unemployment trap in which the economic benefit of going from government support to work is very limited. however. are often labelled something like “early retired” rather than “unemployed. they keep the regulations and talk about duty and discipline. It might be regarded as a weakness of free economies that it is impossible to say exactly which new goods. not something evil created by invisible forces. services. and the result should not surprise anyone: fewer people working to support a growing number of people who are dependent on the government. and immigration has been limited.do not want to give up their own “cradle to the grave” security so that others can have a job. and the desire to work decreases. more intrusive regulations.” but no matter what they are called. not just to economic freedom. Labor market regulations thus tend to create a double insecurity. PROTECTIONISM OR FREE MARKETS? In Western Europe. which would boost people’s willingness to work. such as people in early retirement. Those who are permanently on the outside. The government takes a lot of money from those who work to pay millions to those who do not work. which have grown in size in Western Europe. may rise in competence and salary over time. A broader issue is that labor problems are largely the result of these policies. bureaucrats can pretend to know exactly how many people they will put in different factories next year. this triggers various protectionist opinions and policies. But in a global economy characterized by rapid change and constant restructuring. Many politicians also understand that big public welfare monopolies and social security will be hard to finance in the future. however. and government force leads to more force. Mainly. and thus to avoid gradually liberalizing it. get lower amounts. is that people with low productivity become unemployed. too little work is performed. There is a tendency in Western Europe to ignore the fact that this system is the cause of many problems.” which is in fact a continuing de facto endorsement of big government. Chapter 2 . These groups. and collective bargaining are said to avoid this. so they talk with increasing frequency about people “having to work more. Fewer can afford to hire. Subsidies. the effect is the same: They are not allowed to work for low wages. This is contrary to national survival. Innovation and the uncoordinated demand of free people are a solid foundation in fact. Instead. both for insiders and outsiders. In France. the fears are exaggerated: Not many jobs have left. The ultimate effect. and more barriers to the world. In a centrally planned economy. regulation tends to create more regulation.

and Organisation for Economic Co-operation and Development. We have every reason to welcome the new. the number of Chinese that have entered the global work force has equaled the size of the U. In Ireland. for example. but total employment has risen by 10 percent. Barriers to trade and capital have been reduced.” in this volume. What could have been a productive part of society. “How Have the World’s Poorest Fared Since the Early 1980s?” World Bank Policy Research Working Paper No. Global poverty has been cut in half in 20 years.S. companies have rapidly been shedding manufacturing jobs throughout Western Europe. the agriculture of our time. has instead become a burden. from 40 percent to 20 percent of the world’s population. What emerges in their stead are service-sector occupations. The economic rise of China and India (with GDPs. We know now that the larger the share of services is in the economy. World Development Indicators 2005. 21 See. If we lock up productive resources in the old sectors. the new jobs are better. 2007 Index of Economic Freedom . that are 650 percent and 350 percent higher today than they were in 1980) has been analyzed extensively. and wages are higher. GLOBALIZATION AND CHANGE The global economy is a consequence of the fact that market theory has been spread to more parts of the world than ever before. studies have pointed to substantial gains in terms of increased economic growth and employment. For every job lost. The global economy has been growing steadily. with 80 percent more Chinese on the way. quotas. and regulations. work force. India.21 GDP growth in poor countries that opened up 19 Statistics from Central Statistical Organisation. tariffs. 34 profitable enough. services. THE NEW JOBS In recent decades. The watereddown directive illustrates what happens when protectionism gains ground.manufacturing employment has declined: in one word. employment in manufacturing has decreased by 10 percent since 2000. a terrible precedent has been established. the higher the level of GDP per capita and the lower the level of unemployment. in that sense.worldbank. The gains could have been substantial indeed. A next logical step would be a single market in services.org/ecommerce/catalog/ product?item_id=631625. at http://publications. for example. “Global Inequality Fades as the Global Economy Grows. using conservative estimates from the World Bank20 or distributional estimates from Xavier Sala-i-Martin. we could think more about how to facilitate change to the new. two new ones have been created. About 70 percent of the work force in Western Europe today is employed in the service sector. The prime example of extreme protectionism is the European Agricultural Policy.18 The single market for goods within the EU has created enormous prosperity and new jobs. respectively. International trade and investment have increased sharply during the past 20 years. Manufacturing is. What is a metal worker going to do when his job vanishes. The painful fact is that people throughout Western Europe do not have enough new job opportunities. whether it leaves the country or gets taken by a foreigner? We still do not have a society that makes gaining new competence and change 18 World Bank. Chapter 1. International Monetary Fund. 20 Shaohua Chen and Martin Ravaillon.19 So far. As industrial manufacturing has evolved to utilize less labor. and it haunts the policy debate. and as before. This is always a painful process in the short run for those who are affected. Parliament removed sectors that would benefit the most from free trade in services—health care and education—as well as the important and simplifying principle that allows countries to follow the regulations of their countries of origin. If their governments stopped focusing on how to protect old jobs. the new economy cannot expand. 3341. as agriculture became in New Zealand after deregulation. Logic dictates that the old must make way. It is a system of massive tax-paid subsidies. but the European Parliament has approved only a watered-down services directive. 2004.

is the demographic situation. Fewer people are born. This has effects not only in terms of the number that work and how many they will have to support. DEMOGRAPHY AND CHANGE The current problems in the labor market of Western Europe as a consequence of government intervention may grow worse in a time of globalization. immigrants also grow older. In Germany.” Monthly International Review.to the global economy averaged 5 percent during the 1990s. 2002. Growth and Poverty: Building an Inclusive World Economy. they lose benefits. If the population decreases by 0. Rather. whereas GDP in poor countries that were protectionist decreased by 1 percent a year. high taxes. If the same definition of “working age” is applied in the future. As the productivity of the people in these countries increases. “Baby Boomer’s Poverty Trap: Continental/Japanese Ageing. the population of working age in Germany will decrease from 56 million to 41 million during the same period. “What Are the Options for Pension and Social Security Reforms in Europe?” paper presented at the 747th Wilton Park Conference.S. even more high-skilled jobs are likely to depart. 25 Tito Boeri. but it will nevertheless affect the labor market and government interventions. Globalization. 2003. The real challenge is how older workers are treated and whether they have incentives to continue working if they are healthy in their later years. Hilsenrath and Rebecca Buckman. and Europe. and service jobs are moving to Southeast Asia. and high public contributions to people who don’t work do the opposite. The other main trend. and of course it could increase the labor supply. The average European simply gets older. this enhances global specialization. however. Germany. 2004.25 Greater openness to immigration is often mentioned in this context. The OECD has calculated the size of 24 Gabriel Stein and Brian Reading. In turn. it is estimated that the population will decrease from today’s 82 million to 72 million in 2050. pension costs today amount to 50 percent of public expenditure and would be 80 percent by 2030 if nothing is done. growth is zero. World Bank. because they oppose reform. in Spain. but in fact everyone who will retire in 2050 is already born.22 This has an obvious effect on Western labor markets. and Europe. and a country that wants to be successful must have policies that facilitate that development as much as possible. which 22 Paul Collier and David Dollar. labor market regulations. the process of development is leading to gains in efficiency that result in less industrial employment on net. A similar trend is visible in many other European countries.24 Public expenditure would explode in several countries if nothing is done. Currently. and the population of working age in Italy will decrease from 39 million to 22 million. The emergence of developing countries creates new and wealthy markets for products from the U.S. 35 Chapter 2 . Of course. October 20. Some politicians seem to deplore this. But in time. makes reform even more important.5 percent a year. Today. May 17–19.5 percent a year and productivity rises by 0. “Factory Employment Is Falling World-Wide. every country can become wealthier. The fact that these countries gain competence and create healthy business climates implies that they will be able to produce goods and services that they can make available to consumers in the U. and we live longer. quite a few manufacturing. the fact that we live longer and healthier lives on average is a sign of great progress. It might be said that it is hard to predict what the world will be like in 45 years. The same restructuring of the business sector and the labor market that has been going on for centuries will accelerate. 23 John E. information technology. Already. but a country cannot continue to produce the same goods and services when hundreds of millions of Chinese can do it for a fraction of the price. September 2003. for example.” The Wall Street Journal.23 In a growing global economy. Public monopolies. that rising Asia is not stealing jobs. when workers retire later than the mandatory age. China has lost millions of manufacturing jobs. such as pensions and health care. It is essential to recognize. but also in terms of growth. as in a zero sum game.

the need for reform is even stronger. To the extent that such programs are funded privately. Numerous theories and empirical studies confirm the counterproductive results of government intervention and the successes of deregulation. In all relevant respects. In fact. Viewed within the context of globalization and demographics. A free retirement age where the pension rises with the age of retirement does not punish people who want to work longer. 36 2007 Index of Economic Freedom . In Western Europe. It is also apparent that freedom in the labor market and better social conditions are not opposites. In addition. Just as it is in so many other areas of human endeavor. if the world wants to achieve both more jobs and better living standards. but from government intervention. calling it a tax that amounts to between 50 percent and 90 percent in various Western European countries. the labor market is not fundamentally different from other markets. freedom is essential. reality shows that there is a great need for liberalization in the labor market to allow more new jobs and prosperity to develop. reforms can solve that. In other words. higher spending ceases to be a major concern. CONCLUSION Labor freedom is in turmoil throughout Europe as the nations of the EU are forced to confront inefficiencies in their protectionist policies. the free market is superior when it comes to labor.this loss. the perceived difficulties of funding programs for older workers come not from the market. the funding of health care and elderly care turns out to be a problem only if the government continues to demand that those services be tax-funded. Fortunately.

World Survey of Economic Freedom: 1995–1996 (New Brunswick. 2005).: Transaction Publishers. Gwartney and Robert A.D. measuring the extent of an economy’s openness to investment or trade.1 DEFINING ECONOMIC FREEDOM Economic freedom is that part of freedom that is concerned with the material autonomy of the individual in relation to the state and other organized groups. Ph. N.J. 2005 Annual Report (Vancouver. Over time. each of which is vital to the development of personal and national prosperity. has been recognized for centuries by the great philosophers of liberty such as Locke and Montesquieu as a bulwark of free people. As the first comprehensive study of economic freedom ever published. Lawson with Erik Gartzke. scholars and practitioners have recognized many other freedoms as essential to economic liberty. It did so by identifying 10 measurable freedoms for each country that in concert seem to matter most for the creation of wealth. 1996). Beach and Tim Kane. Canada: Fraser Institute. including free trade. assessing the liberty of individuals to use their labor or finances without restraint. James D. Some of these freedoms are international in nature. Each cross-country study offers a unique and profound contribution that has helped to shape the world being measured. This economic component 1 See. Economic Freedom of the World. Messick. investment rights. the Index has grown and improved. The fundamental right of property. T Most are internal in nature. similar studies have added to the effort. An individual is economically free who can fully control his or her labor and property. and Richard E. Since 1995. he Index of Economic Freedom is a simple average of 10 individual freedoms. 37 . for example. for example. other. and labor freedom.Chapter 3 Methodology: Measuring the 10 Economic Freedoms William W. the 1995 Index of Economic Freedom defined a method by which economic freedom could be rated and ranked in such vastly different places as Hong Kong and North Korea.

produce. Of particular interest are those economic freedoms that are also public goods. pp. Constitution. consume. The index we conceive uses 10 specific freedoms. as it is the original foundation of all other property. and close an enterprise quickly and easily. An Inquiry into the Nature and Causes of the Wealth of Nations (New York: The Modern Library. The definition of economic freedom therefore encompasses all liberties and rights of production. Some minimal coercion is necessary for the citizens of a community or nation to defend themselves. This Lockean idea is embodied in the U. Governments are instituted to create basic protections against the ravages of nature. of course. Exactly where that line is crossed is open to reasoned debate. Both inflation and price controls distort market activity. so that positive economic rights such as property and contract are given social as well as individual defense against the destructive tendencies of others. and goods. recognizing that its traditional definition as an absence of government coercion or constraint must also include a sense of liberty as distinct from anarchy. such as the maintenance of a police force to protect property rights. a monetary authority to maintain a sound currency. and an impartial judiciary to enforce contracts among parties. In other words. fully realized freedoms of movement for labor. and that freedom is both protected by the state and unconstrained by the state.S. capital. labor services). distribution. defined by multiple rights and liberties. 2007 Index of Economic Freedom . Logically. • Trade freedom is a composite measure of the absence of tariff and non-tariff barriers that affect imports and exports of goods and services. Price stability without microeconomic intervention is the ideal state for the free market. governments have imposed a wide array of constraints on economic activity. an expansion of state power requires enforcement and there38 fore funding. but it is also valuable as an end in itself. 1937).of human liberty is related to—and perhaps a necessary condition for—political freedom. Throughout history. distribution.” Adam Smith. and an absolute absence of coercion or constraint of economic liberty beyond the extent necessary for citizens to protect and maintain liberty itself. Ideally. it becomes corrosive to freedom—and the first freedom affected is economic freedom. The 10 Economic Freedoms. individuals are free to work. The highest form of economic freedom provides an absolute right of property ownership. A detailed discussion of each of these factors and their component variables follows this overview. The authors of the Index perceive economic freedom as a positive concept. Most political theorists also accept that certain goods—what economists call “public goods”—can be supplied more conveniently by government than through private means. redundant regulatory rules are the most harmful barriers to business freedom. citizens are taxed to provide revenue for the protection of person and property as well as for a common defense. promote the evolution of civil society. All government action involves coercion. Burdensome. the state will 2 “The property which every man has in his own labour. some as composites of even further detailed and quantifiable components. so it is the most sacred and inviolable. For example. • Monetary freedom combines a measure of price stability with an assessment of price controls. operate. and enjoy the fruits of their labor. When government coercion rises beyond the minimal level. 121–122. which is extracted from the people. Overall economic freedom. and consumption of goods and services (including. • Business freedom is the ability to create. Constraining economic choice distorts and diminishes the production. • Freedom from government is defined to include all government expenditures— including consumption and transfers—and state-owned enterprises. can be quantified as an index of less abstract components. or consumption of goods and services.2 The establishment of a price control is perhaps the clearest example of the distortionary effect of state coercion because of its well-known disruption of the equilibrium of supply and demand. however. and invest in any way they please. first published in 1776.

To the extent possible. those have been converted to 50 percent and 75 percent. Is a minimum threshold for each one essential? Is it possible for one to maximize if others are minimized? Are they dependent or exclusive. A score of 100 signifies an economic environment or set of policies that is most conducive to economic freedom. In the case of trade. Many of the 10 freedoms are based on quantitative data that are converted directly into a score. the information considered for each factor was current as of June 30. All of the old scores have been converted seamlessly to the new scale.heritage. The Index has never been designed specifically to explain economic growth or any other dependent variable. then. 3 For detailed guidance on how the data in the Index can be used in statistical research. however. In the Index of Economic Freedom. Nor is it clear how the 10 economic freedoms interact. The ability of economic freedom to establish a foundation for the rapid development of wealth for the average citizen explains contemporary interest. the Index used a scale of 1 to 5. • Fiscal freedom is a measure of the burden of government from the revenue side. and political favoritism has no place in a free capital market. especially foreign capital. including levels of governmental legal. complements or supplements? These are valid questions. State ownership of banks and other financial institutions such as insurer and capital markets is an inefficient burden. Equal Weight. the authors generally examined data for the period covering the second half of 2005 through the first half of 2006.3 Period of Study. Each one of the 10 freedoms is graded using a scale from 0 to 100. The Grading Scale. • Property rights is an assessment of the ability of individuals to accumulate private property. This will often be described using percent terminology. and they are beyond the scope of our more fundamental mission. that some factors are based on historical information. for example. For the current Index of Economic Freedom. In previous years. The Index. meaning that scores with decimals are possible. Nor would it be proper to weight the Index in a manner that caused the relation between democracy and economic freedom to be statistically stronger. see www. 2006. a country with zero tariffs and zero nontariff barriers will have a trade freedom score of 100. • Labor freedom is a composite measure of the ability of workers and businesses to interact without restriction by the state. economic freedom is an end in itself. where 100 represents the maximum freedom. 39 Chapter 3 . offers a simple composite based on an average of the 10 freedoms. in which 1 represented the best score. that is ably done by empirical econometricians elsewhere. • Investment freedom is an assessment of the free flow of capital. • Freedom from corruption is based on quantitative data that assess the perception of corruption in the business environment. It includes both the tax burden in terms of the top tax rate on income (individual and corporate separately) and the overall amount of tax revenue as portion of GDP. secured by clear laws that are fully enforced by the state. It is also consistent with the purpose of the Index: to reflect the balanced economic environment in every country surveyed.00 and a trade freedom score of 2. cfm#methodology. As described earlier. but it is not a valid rationale to weight some components over others. It is important to understand. a country could have a trade freedom score of 50.00 in the year 1997. It also offers the raw data for each factor so that others can study and weight and integrate as they see fit. and administrative corruption.33. If a country had an overall score of 3. For example. This is a common-sense approach.provide only true public goods. The grading scale is continuous. judicial. • Financial freedom is a measure of banking security as well as independence from government control.org/research/features/index/downloads. respectively. with an absolute minimum of expenditure. all 10 factors are equally weighted in order not to bias the overall score toward any one factor or policy direction.

it raises the regulatory burden by creating an unpredictable business 40 2007 Index of Economic Freedom . the most important are associated with licensing new companies and businesses. Norway receives scores of 100 in nine of the 10 components.For example. in the introduction to Chapter 5. Although many regulations hinder businesses. METHODOLOGY FOR THE 10 ECONOMIC FREEDOMS Freedom #1: Business Freedom Business freedom is a quantitative measure of the ability to start. Once a business is open. after which the average of the converted values is computed. Because it would be unnecessarily cumbersome to cite all the sources used in scoring every single variable of each factor. for example. • Starting a business—minimum capital (% of income per capita). • Obtaining a license—procedures (number). the business freedom factor uses all three subvariables to emphasize closing a business. • Starting a business—cost (% of income per capita). and in the list of Major Works Cited. such as India and countries in parts of South America. even if a country requires the highest number of procedures for starting a business. • Obtaining a license—cost (% of income per capita). • Closing a business—time (years). If one country. In evaluating the criteria for each factor. it could still receive a score as high as 90 based on scores in the other nine components. environment. • Obtaining a license—time (days). the process involved in obtaining a business license requires endless trips to government offices and can take a year or more. In some countries. In Hong Kong. unless otherwise noted. and the process can be completed in a few hours. even though it is ranked 30th in overall freedom worldwide. based on objective data from the World Bank’s Doing Business study: • Starting a business—procedures (number). the procedure for obtaining a business license can be as simple as mailing in a registration form with a minimal fee. to December 31. the major sources used in preparing the country summaries may be found below. 2005. obtaining a business license requires filling out a single form. and • Closing a business—recovery rate (cents on the dollar). Norway. regulations that make it difficult and expensive to close businesses are disincentives for entrepreneurs to start them in the first place. government regulation does not always subside. Sources. The business freedom score for each country is a number between 0 and 100 percent. starting a business. for example. the monetary freedom factor is a three-year weighted average rate of inflation from January 1. the exception being the 13 procedures required by the government for closing a business. Methodology. which yields a score of zero in that component.4 Each of these raw components is converted to a 0 to 100 scale. 2003. for instance. Interestingly. For example. which equates to a score of 69. with 100 equaling the freest business environment. The score is based on 10 components. Finally. In other countries. • Starting a business—time (days). has the world’s highest business freedom score (97 percent).8 percent for that component. Regulations are a form of taxation that make it difficult for entrepreneurs to create value. two countries with the same set of regulations can impose different regulatory burdens. The result represents the country’s business freedom score. all weighted equally. and close a business that represents the overall burden as well as the efficiency of government regulations. it increases. Indeed. applies its regulations evenly and transparently. operate. • Closing a business—cost (% of estate). 4 The recovery rate is a function of time and cost. If the other applies regulations inconsistently. the authors have used a range of authoritative sources. in some cases. and dealing with licenses equally. it lowers the regulatory burden because it enables businesses to make longterm plans more easily. However. as well as many states in the United States.

and these price distortions change incentives. In many cases.397. 2004. The presence of NTBs in a country affects its trade freedom score by incurring a penalty of up to 20 percentage points. Country Report and Country Profile. Weighted average tariffs are a purely quantitative measure and account for the basic calculation of the score using an equation that is described below. The weighted average tariff rate is converted to the base trade freedom score using this equation: Freedom #2: Trade Freedom Trade restrictions can take the form of taxes on imports and exports (known as tariffs). and toward the blocked goods. tariffs make local citizens poorer by raising prices. Malta.Each component is converted to a 100 percent scale using the following equation: which is based on the ratio of the country data for each component relative to the world average. Luxembourg. Country Commercial Guide. Cuba. quotas or outright bans on trade. For the 12 countries that are not covered by the World Bank’s Doing Business study. a tariff is counted toward the average level of protection only if an import actually occurred. face different tariffs. 2005. often indirectly pulling producers away from specializing in some goods 5 Twelve countries are not covered by the World Bank’s Doing Business study: Bahamas. Unless otherwise noted. Furthermore. Cyprus. tariffs that are so high as to fully prevent imports are not captured. whereas a country’s maximum component score is limited to 100 percent. trade restrictions impede economic growth. there are 18. 2004–2006.5 Sources. and regulatory barriers. Tariffs immediately and directly increase the prices that local consumers pay for foreign imports. The minimum tariff is naturally zero. and Tariffi represents the weighted average tariff rate in country i. multiplied by 50. thus. Norway’s 13 procedures is a component value better than the average. the simple average tariff makes no distinction as to how much of each product is actually imported. limiting their own productive development. and Turkmenistan. In contrast. and 2006. Doing Business 2007: How to Reform. Burma. Qatar. Also. The average country will receive a component score of 50 percent. 2003. trade limitations put advanced technology products and services beyond the reach of local people.16 procedures to close a business. Tariffmax and Tariffmin represent the upper and lower bounds for tariff rates. The weighted average tariff uses weights for each tariff based on the share of imports for each good. North Korea. and often do. The trade freedom score is based two inputs: • The trade-weighted average tariff rate and • Non-tariff barriers (NTBs). Different imports entering a country can. U. resulting in a ratio of 1. or one-fifth of the maximum score. This weighted measure may understate the level of tariff protection because goods with high tariffs will have low trade weights. Economist Intelligence Unit. The degree to which government hinders access to and the free flow of foreign commerce can have a direct bearing on the ability of individuals to pursue their economic goals. where TFi represents the trade freedom in country i. For example.S. By interfering with comparative advantage. Libya. in order of priority: World Bank. the authors used the following sources in determining business freedom scores. That ratio multiplied by 50 equals the final component score of 69. Chapter 3 41 .8 percent. Methodology. the business freedom factor is scored by looking into business regulations based on qualitative information from reliable and internationally recognized sources. on average worldwide. Barbados. Bahrain. Department of Commerce. This can be calculated by dividing the country’s total tariff revenue by the total value of imports.

In addition. the promise that they will be treated as well as the most favored exporter. The weighted average tariff of 1. To preserve consistency in grading the trade policy factor. The existence of significant NTBs. the authors use data on international trade taxes instead. Economist Intelligence Unit. the lower the rewards—and the less often such effort will be undertaken. Country Profile. the authors use the weighted average or the simple average of most favored nation (MFN) tariff rates. and official government publications of each country. the authors use the country’s average applied tariff rate. when none of this information is available. The MFN rule requires that the concession be extended to all other members of the World Trade Organization.6 percent. Unless otherwise noted. the most recent time a country reported its tariff data could have been as far back as 1993. In commercial diplomacy. The World Bank produces the world’s most comprehensive and consistent information on weighted average applied tariff rates.” non-discriminatory tariff charged on imports of a good. What remains after the tax is subtracted are the rewards of the effort. 2004–2005 and 2005–2006.6 The 6 The most favored nation tariff rate is the “normal. reduces the score by 20 percentage points. 42 data for customs revenues and total imports may not be consolidated in just one source. Country Commercial Guide. 2004 and 2005. France received a trade freedom score of 76. countries do not report their weighted average tariff rate or simple average tariff rate every year.S. the authors note this fact and may review the grading of this factor if there is strong evidence that the most recently reported weighted average tariff rate is outdated. The equation simplifies to: As an example. The higher the price of effort or entrepreneurship. and Country Commerce. in some cases. exporters seek MFN treatment. for instance. the NTB penalty of 20 percentage points is then subtracted from the base score. In all cases. however.S. Department of Commerce.and the upper bound was set as 50 percent. the authors clarify the type of data used and the different sources for those data in the corresponding write-up for the trade policy factor. Higher tax 2007 Index of Economic Freedom . the price paid for supplying the next economic effort or engagement in an entrepreneurial venture. The Index methodology includes the top marginal tax rates on individual and corporate income. 2005 National Trade Estimate Report on Foreign Trade Barriers. U. in the very few cases in which data on duties and customs revenues are not available. Gathering data on tariffs to make a consistent cross-country comparison can be a challenging task. the authors have decided to use the most recently reported weighted average tariff rate for a country from our primary source. Trade Representative. 1995 to March 2005. the authors simply analyze the overall tariff structure and estimate an effective tariff rate. the authors used the following sources to determine scores for trade policy. that is. If applicable to country i. Trade Policy Reviews. Sometimes. and when the country’s average applied tariff rate is not available.6 percent. in effect. Office of the U. When the weighted average applied tariff rate is not available. as well as a measure of total tax revenue as a portion of gross domestic product (GDP). Unlike data on inflation.7 percent yields a base score 96. If another reliable source reports more updated information on the country’s tariff rate. Freedom #3: Fiscal Freedom A government can impose fiscal burdens on economic activity by generating revenue for itself. Country Report. in order of priority: World Bank. Sources. World Development Indicators 2005 and Data on Trade and Import Barriers: Trends in Average Tariff Rates for Developing and Industrial Countries 1981–2003. as did over 20 other European Union countries that share a unified trade policy. Fiscal freedom is a quantitative measure of these burdens in which lower taxation translates as a higher level of fiscal freedom. World Trade Organization. MFN is now referred to as permanent normal trade relations (PNTR). The marginal tax rate confronting an individual is. primarily through taxation but also from debt that ultimately must be paid off through taxation.

Methodology.. Staff Country Report. In the extreme. In scoring the fiscal freedom factor. Selected Issues and Statistical Appendix. you get the Bahamas’ overall fiscal freedom score of 98. For information on tax revenue as a percentage of GDP. and other governmental authorities (i. Each of the component pieces of data is converted to a 100-point scale using this quadratic equation: j. Key Indicators of Developing Asian and Pacific Countries 2005. in order of priority: Ernst & Young. African Development Bank. Sources. sales. However. Fiscal freedom is composed of three quantitative components in equal measure: • The top tax rate on individual income. they are not a comprehensive measure of the tax burden. and individual contacts from government agencies and multinational organizations such as the IMF and World Bank. raising tax rates will decrease tax revenue itself. The minimum score for each component is zero. in the 2007 Index. the authors used the following sources for information on taxation. they do not include the many other taxes such as payroll. using simple supply and demand. investment agencies. the scoring of fiscal freedom is calculated with a quadratic cost function. yielding a revenue component score of 94. Therefore. and the value-added tax (VAT). Selected Issues and Statistical Appendix. After a major methodology review. as famously demonstrated by the Laffer curve. Country Snapshot. First. This equal weighting allows a country to achieve a score as high as 67 percent based on two of the components even if it receives a score of 0 percent on the third. This is known as deadweight loss because it is not value gained by government. the authors’ primary sources were Organisation for Economic Co-operation and Development data (for member countries). each of these numerical variables is weighted equally as one-third of the factor. International Monetary Fund. This happens because the price wedge created by taxation separates optimal supply and demand and diminishes the quantity of goods exchanged. When the three component freedoms are averaged together. which is the world’s 7th best fiscal freedom score. As an example. Staff Country Report. Freedom #4: Freedom from Government The burden of excessive government is a central issue in economic freedom.3 percent. official government publications of each country. The Global Executive and Worldwide Corporate Tax Guide 2005–2006. • The top tax rate on corporate income. International Monetary Fund (IMF).rates interfere with the ability of individuals to pursue their goals in the marketplace. overall tax revenue as a portion of GDP in the Bahamas is 16 percent. the Bahamas has no tax on individual or corporate income. 2002 to 2006. 2002 to 2006. embassy confirmations and/or the country’s treasury or tax authority). 2005–2006. the 2007 Index is adopting the newly named freedom from government factor 43 where FF ij represents the fiscal freedom in country i for component j and Componentij represents the raw percentage value (a number between 0 and 1) in country i for component Chapter 3 . One way to capture all taxation is to measure total government revenues from all forms of taxation as a percentage of total GDP. Asian Development Bank. or 0. Unless otherwise noted. A doubling of the tax rate quadruples the economic cost to society of lost market activity. both in terms of generating revenue (see fiscal freedom) and in terms of expenditure. which is not represented in the printed equation but was utilized because it means that no single high tax burden will make the other two components irrelevant. so two of the components equal 100. tariffs. but simply prosperity that is destroyed. Deloitte.9.16. and • Total tax revenue as a percentage of GDP. and excise taxes. and Corporate Tax Rates at a Glance. While individual and corporate income tax rates are important to economic freedom. The economics of public finance are unambiguous on the effect of taxation.e.

driving up interest rates and inflation.to measure the level of government spending and control in one place. Distortions in markets occur whenever the purpose of the government’s expenditure is to acquire resources for its own purposes (government consumption) or for transfer payments. 44 ment spending is non-linear. and revenue from SOEs is weighted as one-third. Government expenditures—including consumption and transfers—account for two-thirds of the score. governments can coerce goods and capital out of markets altogether. In cases where SOE data do not exist. and even harmful to productivity.8 percent of GDP. In extreme cases. For example. so that only really large governments receive very negative scores. was considered. Since some level of government expenditures represents public goods. and C is a constant to control for variation among scores (set at 3500). bureaucratic. the new methodology treats zero government spending as the ideal level. doubling spending yields four times less freedom). where anything more or less than this ideal level of government expenditures (e.0 percent. the new scale for scoring govern7 In previous years’ Index methodology. governments with no public goods will be penalized by lower scores in the other factors (such as property rights and financial freedom) that measure public goods institutions. which is driven largely by high government expenditures that equal 40. Economists recognize another kind of systemic failure as well: a tendency for government failure whereby the state becomes inefficient. expenditure measures were considered in two different places: the fiscal burden of government factor and the government intervention factor. There is also a justification for correcting market failures through government action. The minimum component score is zero. Government expenditures necessarily compete with private agents and interfere in market prices by overstimulating demand and potentially diverting resources through a crowdingout effect. setting the ideal level greater than zero. the data are excluded from the factor score. Government expenditures are often justified in terms of “public goods” that are provided efficiently by the state rather than by the market.g. For these reasons. while levels of government exceeding 30 percent of GDP receive much worse scores in a quadratic fashion (e. Israel has a freedom from government score of 60. yielding a compo- 2007 Index of Economic Freedom . The expenditure equation is: where GEi represents the government expenditure score in country i.g. and difficult to apply universally.. A non-linear quadratic cost function is used to calculate the expenditures score. Moreover.. Government expenditure as a percentage of GDP is weighted as two-thirds of the freedom from government factor score. 10 percent) would receive a lower score. Scoring of the freedom from government factor is based on two components: • Government expenditures as a percentage of GDP and • Revenues generated by state-owned enterprises (SOEs) and property as a percentage of total government revenue.7 The revised factor considers both the level of government expenditures as a percentage of GDP and the share of government revenue from state-owned enterprises and property. Methodology. and revenue from state-owned enterprises and properties accounts for the remainder. static. which means that government spending that is close to zero is not significantly penalized. Even if a state-managed economy achieves fast growth through heavy expenditure. As a compromise. choosing a non-zero ideal level seems too arbitrary. The government’s appetite for private resources affects both economic freedom and economic growth. Expendituresi represents the total amount of government spending at all levels as a portion of GDP (between 0 and 1). and a simple subtraction function is used for the SOE score. Ultimately. it diminishes freedom in the process and can create long-term damage to a country’s growth potential.

nent score of 41. Key Indicators 2005. 2005. Unless otherwise noted. and individuals enjoy greater economic freedom. the authors used the following sources for information on government intervention in the economy. Investment.3 percent of GDP. 2002 to 2006. and local. but its SOE is so low that its overall freedom from government score is 91. and undermines a free society. Often. Without monetary freedom. Organisation for Economic Co-operation and Development data (for member countries).6 percent—the 8th highest in the world. in order of priority: World Bank. 2004–2006. Inflation not only confiscates wealth like an invisible tax. 2004.3. however. The score for the monetary freedom factor is based on two components: • The weighted average inflation rate for the most recent three years and • Price controls. the authors look both for data on total revenues from stateowned enterprises and property and for data on total government revenues and then calculate the percentage of total revenues that is attributable to revenues from state-owned enterprises and property.5. Country Commercial Guide. for a component score of 88. which is 100 minus the 3.S. What characterizes almost all monetary theorists today. but this is no longer the case. Economist Intelligence Unit. Free people need a steady and reliable currency as a medium of exchange and store of value. people can rely on market prices for the foreseeable future. A country’s currency is controlled largely by the monetary policy of its government. With a monetary policy that endeavors to maintain stability. raises the cost of doing business. Sources. The extent of price controls is then assessed as a penalty of up to 20 percent subtracted from the base score. data for the share of total revenues from state-owned enterprises and government ownership of property are not readily available. Selected Issues and Statistical Appendix. In most cases. There is no singularly accepted theory of the right monetary institutions for a free society. savings. 2003. In these cases. but also distorts pricing. and 2006. International Monetary Fund. Methodology. The weighted average inflation (WAI) rate for the most recent three years serves as the primary input into an equation that generates the base score for monetary freedom (MF). the gold standard enjoyed widespread support. official government publications of each country. misallocates resources. African Development Bank. In cases where general government spending data are not available. values of 45 Chapter 3 . is support for low inflation and an independent central bank. it is difficult to create longterm value. In contrast. general government expenditure data include all levels of government such as federal. World Development Indicators 2006 and Country at a Glance tables.7. The two equations used to convert inflation into the policy score for a given year are: Freedom #5: Monetary Freedom Monetary freedom is to market economics what free speech is to democracy. Staff Country Report. At one time. where Θ1 through Θ3 (thetas 1–3) represent three numbers that sum to 1 and are exponentially smaller in sequence (in this case. and other longer-term plans are easier to make. Government Finance Statistics April 2006 on CD–ROM. data on central government expenditure are used instead. state. There is a powerful consensus among economists that price controls corrupt market efficiency and that measured inflation in the face of widespread price controls is essentially impossible since the price signal can no longer equate supply and demand. Asian Development Bank. Country Report and Country Profile.5 percent of SOE revenue collected. Hong Kong has an expenditure level of 18. The other component for SOE has a score of 96. International Monetary Fund. Department of Commerce. and U.

in order of priority: International Monetary Fund.000 percent.0 and a 2 percent inflation rate into a score of 91. Transfers or capital transactions are subject to virtually no restrictions. Transfers or capital transactions face no restrictions. with a simple and transparent FI code and a professional. or national security.0. whereas the square root provides much more gradation. • 80%—Same as above with the following exceptions: A transparent FI code is subject to minimal bureaucratic or other informal impediments. The constant d is set to equal 6. Freedom #6: Investment Freedom Restrictions on foreign investment limit the inflow of capital and thus limit economic freedom. capital will flow to where it is most needed and the returns are greatest. The following criteria are used: • 100%—Foreign investment (FI) is encouraged and treated the same as domestic investment. efficient bureaucracy. 1999 to 2006. By its nature. whether the government imposes restrictions on payments. and Country Profile. • 70%—Same as above with the following exceptions: There are some restrictions on FI through general rules or in a few sectors such as utilities.0. and Economist Intelligence Unit. 2006 World Economic Outlook. the authors used the following sources for data on monetary policy. whether they were 100 percent price increases annually or 100. By contrast. There are very few restrictions on foreign exchange. d represents a constant that stabilizes the variance of scores. Transfers or capital transactions are subject to very few restrictions. • 60%—Same as above with the following exceptions: FI is generally encouraged but may not receive equal treatment in a few sectors. and whether specific industries are closed to foreign investment. little or no restriction of foreign investment enhances economic freedom because foreign investment provides funds for economic expansion. The authors assess all countries using the same rubric. 46 2007 Index of Economic Freedom .245. respectively). as well as its policies toward capital flows internally. Both residents and non-residents have access to foreign exchange and may conduct international payments. 0. 128 of 161 countries had weighted average inflation under 10 percent in absolute value. whether the government encourages foreign investment through fair and equitable treatment of investors. Inflationit is the absolute value of the annual inflation rate in country i during year t as measured by the consumer price index. natural resources. Sources. and 0. • 90%—Same as above with the following exceptions: There are very few restrictions on FI in sectors related to national security. and capital transactions. in order to determine its overall investment climate.333. Methodology. A concave functional form would essentially treat all hyperinflations as equally bad. There are legal guarantees against expropriation of property. whether there are restrictions on access to foreign exchange. Unless otherwise noted.090. Country Report. International Monetary Fund. The convex (square root) functional form was chosen to create separation among countries with low inflation rates. State action to redirect the flow of capital is an imposition on both the freedom of the investor and the people seeking capital. 2004–2006.665. The FI code is somewhat non-transparent and/or FI faces bureaucratic impediments. No expropriation is allowed. For this factor. This factor scrutinizes each country’s policies toward foreign investment. which converts a 10 percent inflation rate into a freedom score of 80. the lower its level of economic freedom. whether foreign firms are treated the same as domestic firms under the law. There are a few restrictions on access to foreign exchange or the ability to conduct international payments. There are no restrictions in sectors related to national security or real estate. and the PC penalty is an assigned value of 0–20 percentage points based on the extent of price controls. International Financial Statistics On-line. Questions examined include whether there is a foreign investment code that defines the country’s investment laws and procedures. transfers. the more restrictions a country imposes on foreign and domestic investment.

and foreign investors may purchase real estate only in limited circumstances. and FI is restricted outright in some sectors. therefore. transfers. It should be noted that virtually all countries provide some type of prudential supervision of banks and other financial services. 2005 and 2006. Unless otherwise noted. This supervision serves two major purposes: ensuring the safety and soundness of the financial system and ensuring that financial services firms meet basic fiduciary responsibilities. verified by independent audit. • 20%—Same as above with the following exceptions: FI is discouraged and prohibited in many sectors. Transfers or capital transactions are subject to some restrictions. Country Profile. they lend money to start businesses.S. and the government prohibits international payments. Trade Representative. and capital transactions. the authors used the following sources for data on capital flows and foreign investment. All investors face bureaucratic impediments and corruption. Economist Intelligence Unit. Expropriation of property is common. and the government guarantees compensation. Office of the U.S. and the approval process is opaque and subject to widespread corruption. Ultimately. the lower its economic freedom score will be. Transfers and capital transactions are subject to significant restrictions. Expropriation of property is rare. and other financial actors can make informed choices. banks provide the essential financial services that facilitate economic growth. this task falls under a government’s duty to enforce contracts and protect its citizens against fraud by requiring financial institutions to publish their financial statements and relevant data. Heavy bank regulation reduces opportunities and restricts economic freedom. official government publications of each country. the FI code is somewhat discriminatory. the FI code is discriminatory. 2006 National Trade Estimate Report on Foreign Trade Barriers.Expropriation of property is highly unlikely. Department of Commerce. The government imposes extensive controls on international payments. and U. Banks also furnish a safe place in which individuals can store their savings. 2005 and 2006. and the government imposes many controls on international payments. purchase homes. foreigners may not own real estate. and Country Report. Country Commerce. in order of priority: International Monetary Fund. the more a government restricts its banking sector. • 30%—Same as above with the following exceptions: FI is significantly restricted. Residents and/or non-residents face some restrictions on access to foreign exchange or their ability to conduct international payments. depositors. the FI code is discriminatory. Greater direct control of banks by government is a threat to these functions because government interference can introduce inefficiencies and outright corruption. • 10%—Same as above with the following exceptions: Foreign investors may not purchase real estate. The government controls or prohibits most international payments. Residents and non-residents face strict restrictions on access to foreign exchange. transfers. the marketplace should be the primary source of protection through such institutions as independent auditors and information services. transfers. Transfers or capital transactions are subject to obvious restrictions. Country Commercial Guide. Such oversight is distinguished from burdensome or intrusive government regulation or government 47 Chapter 3 . Few sectors are open to FI. Freedom #7: Financial Freedom In most countries. In a free banking environment. and capital transactions. so that borrowers. • 50%—Same as above with the following exceptions: Foreign investors face restrictions on their ability to purchase real estate. • 40%—Same as above with the following exceptions: FI is somewhat restricted. and capital transactions. and secure credit for the purchase of durable consumer goods. Sources. Annual Report on Exchange Arrangements and Exchange Restrictions 2005. All investors face significant bureaucratic impediments and corruption. • 0%—Same as above with the following exceptions: FI is prohibited.

Foreign financial institutions are subject to few restrictions. Banks are free to issue competitive notes. that limits economic freedom and causes a country’s grade for this factor to be worse than it might otherwise be. on a continual basis. government ownership or intervention in the insurance sector undermines the ability of providers to make available those services at prices based on risk and market conditions. the authors take related non-banking financial services. such as insurance and securities. This measurement is essential in allocating capital resources to their highest-valued uses and thereby satisfying consumers’ most urgent requirements. extend credit and accept deposits. Credit is allocated on market terms. the difficulty of opening and operating financial services firms (for both domestic and foreign individuals). Same as above with the following exceptions: Credit allocation is slightly influenced by the government. Foreign financial institutions operate freely and are treated the same as domestic institutions. The following criteria are used in determining a country’s score for this factor: 48 • 100%—Negligible government influence. the expected profits and losses in publicly held companies. Financial institutions may engage in all types of financial services. • 90%—Minimal government influence. and government influence on the allocation of credit. and private allocation of credit faces almost no restrictions. • 70%—Limited government influence. Same as above with the following exceptions: The central bank is not fully independent. Financial institutions face almost no restrictions on their ability to offer financial services. The financial freedom factor measures the relative openness of each country’s banking and financial system. If the government intervenes in the stock market. the extent of state intervention in banks and other financial services. • 50%—Considerable government influence. • 80%—Nominal government influence. Same as above with the following exceptions: Independent central bank supervision and regulation of financial institutions are minimal but may extend beyond enforcing contractual obligations and preventing fraud. aside from basic provisions to enforce contractual obligations and prevent fraud. The authors score this factor by determining the extent of government regulation of financial services. The government exercises active ownership and control of financial institutions with a significant share of overall sector assets. It is such government intervention in the market. and its ability to enforce contracts and prevent fraud is insufficient. its supervision and regulation of financial institutions are somewhat burdensome. As a result. As with the banking system. Same as above with the following exceptions: Independent central bank supervision and regulation are straightforward and transparent but extend beyond enforcing contractual obligations and preventing fraud. Similarly. The government does not own financial institutions. Increasingly. Methodology. the central role played by banks is being complemented by other financial services that offer alternative means for raising capital or diversifying risk. The ability of financial institutions to offer financial services is subject to some restrictions. The authors use this analysis to develop a description of the country’s financial climate and assign it an overall score between 0 percent and 100 percent. Independent central bank supervision and regulation of financial institutions are limited to enforcing contractual obligations and preventing fraud.ownership of banks. it contravenes the choices of millions of individuals by interfering with the pricing of capital—the most critical function of a market economy. both of which interfere with market provision of financial services to consumers. Equity markets measure. Government ownership of financial institutions is a small share of overall sector assets. • 60%—Significant government influence. and conduct operations in foreign currencies. Same as above with the following exceptions: Credit allocation is significantly influenced 2007 Index of Economic Freedom . into consideration when grading this factor. increased government intervention in these areas undermines economic freedom and inhibits the ability of non-banking financial services to contribute to economic growth. not the market itself.

2005 and 2006. Foreign financial institutions are subject to significant restrictions. The justice system punishes those who unlawfully confiscate private property. and World Bank. and the ability of individuals and businesses to enforce contracts. The court system enforces contracts efficiently.by the government. and the rule of law is vital to a fully functioning free-market economy. Unless otherwise noted. Trade Representative. its supervision and regulation of financial institutions are heavy. and bank formation faces significant barriers. and expropriation is highly unlikely. • 80%—Private property is guaranteed by 49 Chapter 3 . The ability of financial institutions to offer financial services is subject to significant restrictions. The government exercises active ownership and control of financial institutions with a large minority share of overall sector assets. Same as above with the following exceptions: The central bank is subject to government influence. World Development Indicators 2006. It also assesses the likelihood that private property will be expropriated and analyzes the independence of the judiciary. and its ability to enforce contracts and prevent fraud is weak. • 30%—Extensive government influence. the authors used the following sources for data on banking and finance. Bank formation is restricted. and Country Report. the Ministry of Foreign Affairs of the Netherlands. Financial institutions are heavily restricted. Foreign financial institutions are subject to some restrictions. Country Profile. Economist Intelligence Unit. the existence of corruption within the judiciary. Same as above with the following exceptions: The central bank is not independent. official government publications of each country. and the International Monetary Fund. Foreign financial institutions are discouraged or highly constrained. and make long-term plans because they know that their income and savings are safe from expropriation. • 10%—Near repressive. Department of Commerce. Same as above with the following exceptions: Supervision and regulation are designed to prevent private financial institutions. Office of the U. the State Sec- retariat for Economic Affairs of Switzerland. Same as above with the following exceptions: Credit allocation is extensively influenced by the government.S. The government owns or controls a majority of financial institutions or is in a dominant position. 2006 National Trade Estimate Report on Foreign Trade Barriers. There is no corruption or expropriation. • 90%—Private property is guaranteed by the government. • 0%—Repressive.S. the International Bank for Reconstruction and Development (IBRD or World Bank). save their income. This factor scores the degree to which a country’s laws protect private property rights and the degree to which its government enforces those laws. Freedom #8: Property Rights The ability to accumulate private property is the main motivating force in a market economy. Country Commerce. Secure property rights give citizens the confidence to undertake commercial activities. the International Development Agency of Canada. 2005 and 2006. Foreign financial institutions are prohibited. • 40%—Strong government influence. The justice system punishes those who unlawfully confiscate private property. Same as above with the following exceptions: Credit allocation is controlled by the government. Country Commercial Guide. Corruption is nearly nonexistent. The authors grade each country according to the following criteria: • 100%—Private property is guaranteed by the government. Sources. Methodology. U. and private allocation of credit faces significant barriers. The court system enforces contracts efficiently and quickly. and its supervision and regulation of financial institutions are repressive. in order of priority: The Financial Sector Reform and Strengthening (FIRST) Initiative jointly undertaken by the Department for International Development of the United Kingdom (DFID). • 20%—Heavy government influence. Private financial institutions are prohibited.

Expropriation is possible. • 0%—Private property is outlawed. Political corruption is a sad part of human history and manifests itself in many forms such as bribery. and delays are so long that they deter the use of the court system. The judiciary so corrupt that property is not protected effectively. Inc. because of ongoing war) that protection of property is almost impossible to enforce. • 20%—Private property is weakly protected. The court system is subject to delays and is lax in enforcing contracts. Holmes. 50 2007 Index of Economic Freedom . The court system is so inefficient and corrupt that outside settlement and arbitration is the norm. Kim R. Corruption is possible but rare. whereby public officials steal or profit illegitimately from public funds.S.: The Heritage Foundation and Dow Jones & Company. and U. but others frequently limit individual liberty by outlawing such activities as private transportation and construction services. Expropriation is possible. Department of Commerce. Expropriation is common.S. and expropriation is unlikely. The court system enforces contracts efficiently but with some delays. Country Commercial Guide. Democracy. Corruption is extensive. cronyism. outlaw such activities as trafficking in illicit drugs. In the context of governance. nepotism. A government regulation or restriction in one area may create an informal market in another. Expropriation is possible but rare. Barro. 36. and Economic Performance. and expropriation is highly unlikely. • 30%—Property ownership is weakly protected. Freedom #9: Freedom from Corruption Corruption is defined as dishonesty or decay. a country with high barriers to trade may have laws that 8 Robert J. The court system is highly inefficient.”8 Many societies.” Chapter 2 in Gerald P. Jr. Country Commerce. Corruption infects all parts of an economy unless the market is allowed to develop transparency and effective policing. Corruption is possible but rare. • 70%—Private property is guaranteed by the government. 2005 and 2006. Judicial corruption is extensive. a distortion by which individuals are able to gain personally at the expense of the whole. The country is in such chaos (for example. and the judiciary may be influenced by other branches of government. and the judiciary may be influenced by other branches of government. in order of priority: Economist Intelligence Unit. extortion. embezzlement. “Rule of Law. Corruption is minimal. D. and Melanie Kirkpatrick. For example. p.the government. Property rights are difficult to enforce. • 60%—Enforcement of property rights is lax and subject to delays.” notes Harvard economist Robert Barro. 2000 Index of Economic Freedom (Washington. Unless otherwise noted. 2005 and 2006. Corruption is endemic. patronage. Corruption may be present. and the judiciary is influenced by other branches of government. and (most commonly) graft. of course. and almost all property belongs to the state. • 10%—Private property is rarely protected. As a general rule. Sources. Expropriation is unlikely.. Expropriation is common. “In some circumstances. 2000). “corruption may be preferable to honest enforcement of bad rules. and Country Report. 2005 and 2006. Country Reports on Human Rights Practices. • 40%—The court system is highly inefficient. O’Driscoll. and the judiciary is strongly influenced by other branches of government. a higher level of corruption equates to a greater corrosion of economic freedom.. Corruption is present.C. Department of State. and all property belongs to the state. For example. outcomes may be worse if a regulation that prohibits some useful economic activity is thoroughly enforced rather than circumvented through bribes. People do not have the right to sue others and do not have access to the courts. U. although this may not hold in extreme cases. • 50%—The court system is inefficient and subject to delays. Country Profile. the authors used the following sources for information on property rights. it can be defined as the failure of integrity in the system.

The new labor freedom factor is a quantitative factor based on objective data from the World Bank’s Doing Business study. and so on. 2006 National Trade Estimate Report on Foreign Trade Barriers. The CPI is based on a 10-point scale in which a score of 10 indicates very little corruption and a score of 1 indicates a very corrupt government. and official government publications of each country. Economist Intelligence Unit. the authors used the following sources for information on informal market activities. the authors convert each of these raw CPI data to a 0 to 100 scale by multiplying the CPI score by 10. • Difficulty of firing redundant employees. This procedure considers the extent to which corruption prevails in a country. It provides reliable cross-country data on regulations concerning minimum wages. 2004. if a country’s raw CPI data score is 5. U. 81. hours. and 2005. severance requirements. the freedom from corruption score is determined by using the qualitative information from internationally recognized and reliable sources.9 Difficulty of firing is also an index measure calculated by Doing Business. the country’s overall freedom from corruption score is 55.S. However. (ii) whether weekend work is unrestricted. Country Commerce. Unless otherwise noted. Office of the U. (iv) whether the workweek can extend to 50 hours or more (including overtime) for 2 months a year. and 2006. Country Profile. • Rigidity of hours. It represents a simple issue: whether employers have the 9 World Bank. and • Cost of firing redundant employees. coverage on labor market flexibility in the previous methodology was limited by the lack of data on labor regulation that were available across countries in a consistent manner. A higher minimum wage makes hiring unskilled workers more difficult. 2005. Doing Business 2007: How to Reform.5. Sources. 2004. For example. laws inhibiting layoffs. in order of priority: Transparency International. four quantitative components are equally weighted as 25 percent of the labor freedom factor: • Minimum wage. p.5 days. the 2007 Index has adopted an independent labor freedom factor that is designed to measure countries’ labor market regulations more adequately. Department of Commerce. Corruption Perceptions Index. and (v) whether paid annual vacation is 21 working days or fewer. Methodology. 2002. Country Commercial Guide. Methodology. calculated by Doing Business. For countries that are not covered in the CPI. In scoring freedom from corruption. and measurable regulatory burdens on hiring. which measures the level of corruption in 152 countries.S. 2003. 2004. to determine the freedom from corruption scores of countries that are also listed in the Index of Economic Freedom. The minimum wage component is basically a single quantitative measure: each country’s mandatory minimum wage as a percentage of the average value added per worker.protect its domestic market and prevent the import of foreign goods. and Country Report. (iii) whether the workweek can consist of 5. Rigidity of hours is an index measure. and 2006. In light of the growing importance of labor Chapter 3 . that includes five components: (i) whether night work is unrestricted. This factor relies on Transparency International’s Corruption Perceptions Index (CPI). market flexibility in today’s economy and the increased availability of consistent labor policy data across countries. but these barriers create incentives for smuggling and an informal market for the barred products. Trade Representative. 2005. Specifically. 51 Freedom #10: Labor Freedom Labor policy has been a key variable in the Index of Economic Freedom since its inception in 1995 as part of the wages and prices factor as well as the regulation factor.

and this affected their trade freedom scores as we incorporated the new tariff rates. CONTINUITY AND CHANGE With over a decade’s experience measuring freedom in over a hundred nations annually. U. Turkey’s overall score is 45. (iii) whether the employer needs to notify a third party to terminate a group of more than 20 redundant workers. or made law but not enforced. 2005. the labor freedom factor is scored by looking into labor market flexibility based on qualitative information from other reliable and internationally recognized sources. Country data in the most up-to-date sources are often behind by years. 2004–2006. (iv) whether the employer needs approval from a third party to terminate 1 redundant worker. yielding a labor freedom score. 10 Ibid. or whether that act has to be justified to the government or third parties. It has eight components: (i) whether redundancy is disallowed as a basis for terminating workers. mandatory severance pay. 2004. (ii) whether the employer needs to notify a third party (such as a government agency) to terminate 1 redundant worker. and (viii) whether priority rules apply for reemployment. for example. with a zero score for the component. A few months before this publication went to press. two issues regularly challenge our methodology.4 percent.10 The cost of firing is a composite of three quantitative subcomponents related to dismissals: the legally mandated notice period.legal authority to lay off workers efficiently. a country can experience a violent conflict or catastrophe that interrupts all efforts to measure the economy. Sometimes the policy changes are not reflected in official data.11 Sources. For the 12 countries that are not covered by the World Bank’s Doing Business study. whereas a country’s maximum component score is limited to 100 percent. The simple average of the converted values for these four variables is computed for the country’s labor freedom score. As an example. (vi) whether the law requires the employer to consider reassignment or retraining options before redundancy termination.32 globally. and sometimes the changes are proposed but not made law. the World Bank revised tariff data for numerous countries. it could still get a score as high as 75 based on the other three components. Country Report and Country Profile.62. even if a country has the worst rigidity of hours in the world. The average country will receive a component score of 50 percent. which is higher because the other three components represent a higher level of freedom than its minimum wage represents. Economist Intelligence Unit. based on the following equation: yielding a component score of 25. The first challenge has to do with outdated data. The four component scores are then averaged for each country.2 percent. Unless otherwise noted. Doing Business 2007: How to Reform. the authors relied on the following sources for data on labor freedom. But countries often make policy changes during the year of grading. Department of Commerce. 52 2007 Index of Economic Freedom . (v) whether the employer needs approval from a third party to terminate a group of more than 20 redundant workers. where country i data are calculated relative to the world average and then multiplied by 50. The second challenge is the balance between 11 See note 5. each of the four components is converted to a 0 to 100 scale. In constructing the labor freedom score.S. Turkey’s average minimum wage as a ratio of the average wage is 0. (vii) whether priority rules apply for redundancies. in order of priority: World Bank. Additionally. which is double the average of 0. Country Commercial Guide. and 2006. For example. and a penalty the employer must pay when dismissing a worker.

the scaling is changed. which had been suspended since 2001 because of civil unrest or anarchy. With the publication of the World Bank’s Doing Business report.g. and Iraq and Serbia–Montenegro. not adoptions of new data that have no relation to the previous data. The changes introduced in the 2007 Index include very minor discontinuities for comparisons between 2006 and 2007 scores because the 2006 scores have been revised as well. and 0. As described above. An attempt to regrade qualitative factor scores in previous years is problematic given 53 Chapter 3 . and property) present an interesting dilemma. a country that received a 2 for property rights in 2006—which is now transformed to 75—may get a score of 80 in 2007 even if its laws are unchanged. The inclusion of labor freedom is the only radical departure from the old methodology. this information is new and extends back only to 2005. Most have a discontinuity of some degree for one year in the overall series. Regrettably.quality and consistency of the Index itself. Any changes in law effective after that date have no positive or negative impact. numerical grading was suspended for four countries: the Democratic Republic of Congo and Sudan. This year. for which data necessary to grade the country are not available. In 2006. The correlation between these methods is high. for 1–5—but the new detail allowed for 2007 scores means that there will be a one-time adjustment in these four factor series. but the methods themselves are clearly distinct. every one of the 10 factors of freedom has been revised. enables readers around the world to see how recent changes in government policy affect economic freedom in any of 161 specific countries. or democratic initiatives. and only a few—those that are purely quantitative—are 100 percent continuous back to 1995. The authors aim for methodological consistency from one year to the next. New Methodology. The Index of Economic Freedom. from a five-bracket scale to a 0–100 scale. Analyzing economic freedom annually permits the authors of the Index to include the most recent information as it becomes available country by country. Changes in government policy are occurring at a rapid rate in many less-developed countries. because the Index is published several months after the cutoff date for evaluation. financial. because it is published each year. election results. 2006). using 100. The Asian financial crisis. erupted at the end of 1997 just as the 1998 Index of Economic Freedom was going to print. nor do new constitutions. Grading was resumed in 2006 for Angola and Burundi. Old 1–5 scores for 1995–2006 were converted using a simple equation—e. 75. Though the methodology for the qualitative freedoms is not changed. The three qualitative freedoms (investment. which are in a state of civil unrest or anarchy. for example. Each country page includes a time series graph of the country’s overall score for each year from the present back to 1995. business freedom uses inputs from the World Bank’s Doing Business for the 2006 and 2007 Indices but uses graders’ assessments of the regulatory environment for the years 1995– 2005. 25. balanced against opportunities to incorporate new data and methods that improve the quality of the current year’s scores. For example. such occurrences have been uncommon and isolated to one region of the world. Occasionally. The other discontinuities are really just changes in the method. High correlations exist between old and new data sources for the business freedom and freedom from corruption factors. A cutoff date is utilized so that all countries are treated fairly. Most Current Information. The policy changes in response to that crisis therefore were not considered in that year’s scoring but were included in the next year’s scores. the period of study for the current year’s Index considers all information as of the last day of June of the previous year (June 30. For example. The following table defines how the Index time series changed over time. major economic events occur that cannot be factored into the scores. there exists for the first time a way to compare the restrictions placed on labor freedom in a quantitative way. In the past. respectively. 50..

we 54 also attempt to make the scores continuous back to 1995. their qualitative/subjective nature.heritage. While the new level of detail is clearly superior.. In this way. Kim R. 2007). and has inevitably relied on the assessments of human beings. It would be easy to maintain perfect continuity if no changes were ever made. at least not in the same level of detail. the breaks mean that overall score changes between 2006 and 2007 will partially be the result of methodological detail in the Index and partially due to policy changes in the country. the methodology used for the Index of Economic Freedom should not change over time. at www.org/index. and Mary Anastasia O’Grady. Over time. the scores for various countries would improve as the institutions of freedom improved as measured against a constant standard of measurable liberty. therefore. It is a policy tool with uses for current year analysis and time series analysis. It is important to remember that the Index has been an effort to quantify subjective factors. There is a natural tension between the quality of the Index and the continuity of the Index. and we think it is fairest to leave them as is. 2007 Index of Economic Freedom . Instead. Ideally. so each time a methodology change is implemented. Continuity. Inc. but we also aim for continuity. country performance from one year to the next is comparable. the Index of Economic Freedom has been continually revised and improved. D.: The Heritage Foundation and Dow Jones & Company. Holmes. However.C. natural data-generating process (such as temperature). or vice versa. The happy consequence of progress is an enhanced ability to measure progress. but we are committed to incorporating innovations into the methodology to optimize both the quality and continuity of the Index rather than simply maximizing one at the expense of the other. not the measure of a singular. 2007 Index of Economic Freedom (Washington. the increased quality of data available allows researchers to create more detailed measures of institutions as well as economic performance.Time Series Continuity 2006–2007 Index Continuity (100 = no change) 1995–2007 Index Continuity (100 = no change) Explanation Explanation New data in 2006 Business Freedom Trade Freedom Fiscal Freedom Freedom from Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Freedom from Corruption Labor Freedom 100 100 100 100 95 90 90 90 100 100 New data in 2007 New scale in 2007 New scale in 2007 New scale in 2007 50 100 100 100 95 90 90 90 50 0 New data in 2007 New scale in 2007 New scale in 2007 New scale in 2007 New data in 2002 Introduced in 2005 Source: Tim Kane. there are still some cases for which new data are not available going back to the first year. Nevertheless.

the Index should therefore be better than ever.Discontinuities in any one of the 10 factors tend to be minor. in 2002. For example. both the addition of an academic advisory board and the effort to improve the methodology are intended to help people achieve greater personal freedom. with negligible impact on the overall score. Chapter 3 55 . the authors began to use a measure of corruption reflecting survey data rather than expert judgment. Another theoretical discontinuity is the fact that different human graders are used to judge the same factor in dif- ferent years. although the graders make every effort to use the same standards. In the end. and the discontinuity of time series was justified by a high correlation between the methods. As a tool to compare economic institutions across countries. The change made sense.

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1 5.org/external/pubs/ft/weo/2006/01/data/index. Kim R. and Mary Anastasia O’Grady. and the punishing T unemployment and inflation rates throughout sub-Saharan Africa.285.imf.gov/cia/publications/factbook/index.002 $1.Inflation 5-Year ment Rate* Rate* Growth Rate* 6.worldbank.html (October 19. World Development Indicators Online. International Monetary Fund.2 3.org/index.: The Heritage Foundation and Dow Jones & Company.htm (October 19.2 58.503 $7. his chapter summarizes data on the five geographic regions used in scoring the countries included in the Index of Economic Freedom.4 5.2 4.578. at publications. 2006). World Economic Outlook database.947.533 797. D.9 * Weighted by population.Chapter 4 Economic Freedom in Five Regions Tim Kane.391.225.5 62.7 8.5 4. 2007). such as the generally high levels of wealth and freedom in Europe.1 5. Africa Sub-Saharan Africa World 59. at www.6 7.644.171 6.553 670.637 306.8 4.984 $9.784 $19..4 9.7 60.org/subscriptions/WDI (October 19. April 2006.6 64. Ph. 57 .C.3 57.0 9.6 55.760.5 15.128 $19.029. the huge populations of Asia.5 52. Yet one relationship remains constant for all to see: In each region. Holmes.5 68.7 4.065 GDP Unemploy. Central Intelligence Agency. Sources: World Bank. Table 1: Economic Freedom and Performance by Region Average Economic Freedom 2007 Score Simple Weighted* Asia–Pacific Europe Americas Middle East/N. and Tim Kane.407 871. 2006).1 10.1 5.3 13. 2007 Index of Economic Freedom (Washington. Inc.heritage.5 8.301 Population GDP per Capita (PPP)* $5. the richest countries tend to be those with the strongest economic freedoms.5 2.D. at www.1 67. Each region has features that are unlike any other.cia. 2006.4 54. subscription required). at www. The World Factbook 2005.2 54.

which has been the world’s most economically repressed society for over a decade.org/index. at www. The world’s three freest economies—Hong Kong. in contrast with regional neighbors like Turkmenistan. India and China are ranked 19 and 22 in the region. It also includes the change from last year ’s score.1 percent. Kim R.” and North Korea. and Burma. 2007).: The Heritage Foundation and Dow Jones & Company. this region contains over half of the world’s population: one-third in China and nearly another third in India. compared to 41 in Europe and 40 in sub-Saharan Africa. Vietnam. 2007 Index of Economic Freedom (Washington.7 percent. Yet there are only 30 countries in the region.ASIA–PACIFIC (REGION A) The Asia–Pacific region spans the world’s largest surface area. there is no denying that the winds of change are blowing in Asia. Despite having one of the world’s poorest populations—the population-weighted average GDP per capita is $5. particularly in 2007 Index of Economic Freedom . Chart A2 shows the clear relationship between high levels of economic freedom and high GDP per capita. all of which are categorized as “repressed. scores. compared to the world average. With 3. D. Chart A3 shows the distribution of countries across five different categories.heritage. Chart A1 shows the 1995–2007 time series of the average economic freedom score for the region. and both giants are categorized as “mostly unfree. and each country’s 2007 scores for each of the 10 economic freedoms. It also has one of the lowest average unemployment rates (8.7 percent) and the lowest average inflation rate (4. Bangladesh.2 percent). given that the average economic freedom score is below the world average at 59. Singapore. Laos. Holmes.C.6 billion inhabitants. The fast growth cannot be explained by a high level of economic freedom alone. and Australia—are in Asia. the country’s world rank.” Despite these seemingly low 58 Chart A1: Asia-Pacific Average Economic Freedom 100 80 60 40 20 0 1995 2007 Source: Tim Kane..784—the Asia–Pacific region has far and away the fastest five-year per-capita growth rate at 6. Inc. stretching from Japan and New Zealand in the East to Azerbaijan in the West. and Mary Anastasia O’Grady. What makes Asia quite different from other regions is the extraordinary disparity in levels of economic freedom. Table A1 ranks the countries in the region from most free to least free based on their overall freedom scores.

6 53.8 87.3 85.0 95.0 75.9 74.6 58.4 0.9 75.6 50.5 0.8 65.0 73.0 50.7 88.6 55.2 51.0 10.6 72.0 40.8 84.0 23.0 40.6 -1.0 20.3 30.1 66.0 80.0 20.0 94.0 30.0 70.2 71.0 50.5 92.0 64.6 67.0 23.0 90.0 50.8 91.4 70.0 60.0 77.0 30.3 0.0 20.0 30.0 10.7 3.0 93.6 91.1 77.0 90.0 80.9 54.6 74.1 59.1 89.1 68.6 76.5 54.8 -0.0 30.0 60.2 -2.5 65.2 64.2 70.0 10.0 40.0 40.2 51.0 75.1 74.0 10.5 77.0 66.0 32.7 81.8 0.3 85.7 55.8 -3.6 99.0 10.4 56.0 80.0 20.5 55.6 90.0 2.0 30.6 84.4 86.5 84.8 83.9 65.2 76.2 84.0 70.0 30.7 65.org/index.0 40.0 50.0 83.8 42.0 40.0 30.7 57.0 50.0 30.0 50.6 86.3 1.8 66.0 87.4 67.0 10.5 71.5 79.0 20.1 54.2 60.0 96.0 22.0 68.0 26.0 50.0 21.0 50.0 30.0 26.7 94.6 65.6 2.7 67.0 0.5 73.8 70.0 25.0 18.5 63.0 32.8 72.0 82.0 90.2 37.3 68.0 40.2 80.0 22.3 85.0 70.0 30.0 52.0 91.2 53.0 30.0 49.3 73.0 71.3 91.4 69.5 67.0 30.4 -6.0 50. 2007).3 -0.3 93.5 -0.1 89.6 66.0 81.0 30.0 30.2 70.0 0.2 81.4 68.6 81.0 33.0 50.7 91. South Malaysia Thailand Kazakhstan Mongolia Kyrgyzstan Fiji Sri Lanka Pakistan Philippines Tajikistan Cambodia India Azerbaijan Indonesia China Nepal Uzbekistan Vietnam Laos Bangladesh Turkmenistan Burma Korea.1 61.8 59.0 30.1 49.0 30.4 -1.5 -1.7 81.0 59. Inc.3 91.0 55. 2007 Index of Economic Freedom (Washington.1 -2.0 90.0 50.0 17.2 71.0 91.6 89.0 30.1 3.5 63.0 40.2 87.0 30.0 95.3 53.4 60.0 90.8 0.0 90.7 69.9 88.0 -1.0 18.0 50.7 59.0 10.0 59 Trade Freedom Fiscal Freedom Economic Freedom 2007 Freedom from Government Freedom from Corruption 83.6 67.0 Source: Tim Kane.0 30.3 74.0 30.0 0.0 30.8 1.5 2.7 81.9 74.2 94.7 64.7 82.7 82.0 86.0 50.0 21.0 30.6 60.0 45.7 93.4 87.0 90.4 67.0 47.6 73. Kim R.3 94.Table A1: Economic Freedom Scores for Asia and the Pacific Investment Freedom 2007 Regional Rank Monetary Freedom Change from 2006 Financial Freedom Business Freedom 2007 World Rank Property Rights Labor Freedom 93.0 30. Chapter 4 .1 80..1 62.4 80.0 30.0 60.8 66.0 70.0 38.3 58.1 63.0 30.6 58.2 70.6 69. D.8 74.9 76.0 88.9 56.3 93.7 89.0 51.0 25.0 90.0 73.2 85.4 70.0 10.6 91.0 30.4 61.3 0.0 22.4 94.0 30.8 -1.0 30.5 82.9 80.2 85.4 -1.8 81.9 73.2 1.0 80.0 74.0 29.1 0.1 89.8 86.0 10.4 74.0 10.0 54.0 70.0 77.0 20.0 51. at www.5 40.0 30.0 70.4 56.2 57.0 -1.0 30.0 30.0 51.9 56.9 59. North Country 89.8 69.1 -3.1 68.0 30.: The Heritage Foundation and Dow Jones & Company.9 73.0 88.4 1.0 2.7 89.0 60.0 50.3 79.0 84.0 40.9 0.0 70.0 0.9 59.6 71.0 1 2 3 5 18 26 36 48 50 75 78 79 80 84 89 97 98 102 104 107 110 119 121 132 138 140 143 152 153 157 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Hong Kong Singapore Australia New Zealand Japan Taiwan Korea.2 89.0 80.7 54.4 55.6 -2.0 73.1 47.heritage. Holmes.0 50. and Mary Anastasia O’Grady.2 67.2 76.0 30.2 -0.C.0 30.1 86.0 60.8 85.1 65.5 90.3 77.0 10.0 74.

This suggests that countries could make the most progress by strengthening their banking and investment institutions. The economic success enjoyed by Taiwan. and freedom from corruption. meaning that it is easiest to start. 60 2007 Index of Economic Freedom . Japan enjoys the strongest monetary freedom. Singapore is the top country in business freedom and labor freedom.India and China. However. and Japan in particular are an inspiration for other Asian countries—and for the rest of the world as well. the typical Asian country has notably lower scores in four factors: investment freedom. thanks largely to its low inflation rate. financial freedom. major reforms in New Zealand and Australia have raised their economic freedom scores and contributed to superior economic performance. South Korea. and also allows firms the most flexibility in hiring and firing workers. and close a firm there. Meanwhile. operate. Asia–Pacific countries are significantly stronger than the world average in two of the 10 economic freedoms: labor freedom and freedom from government. Hong Kong has the top score in six of the 10 factors. whereas labor freedom is 4 percentage points better. property rights. including insurance and banking firms. and New Zealand sets the standard for clean government. perhaps by allowing greater foreign investment by overseas financial firms. Hong Kong is clearly blazing a trail for others to follow. Lower government expenditures result in a government score that is almost a full 10 percentage points better than the world average.

and the distortionary subsidies in many parts of Europe hinder its growth. the country’s world 61 Chapter 4 . It also includes the change from last year ’s score. Chart B1 shows the 1995–2007 time series of the average economic freedom score for the region. The heavy business and labor regulations that are in place are intended to protect traditional sectors and occupations. The European continent produces onequarter of the world’s economic product and is doubly more active in export and import than other regions (though much of this activity is internal trade). Holmes. which is built around a quasi-market welfare state. Most people around the world see Europe and prosperity as synonymous because the people of most European countries enjoy incomes that average $19. If there is one lesson about economics from the past 300 years. at www. The overall statistical picture of Europe is one of prosperity and of stability. The contemporary European Union consensus. the lack of fiscal and governmental freedom. It also served as the testing ground for the two great economic philosophies of the past century and witnessed the collapse of Communism. is itself looking like a relic of the past century in contrast with fastgrowing tigers like Ireland and Estonia.org/index. and Greece.heritage. and Mary Anastasia O’Grady. Iceland. Now that Cold War contrast has been eclipsed by a new technologydriven globalization. Kim R. 2007 Index of Economic Freedom (Washington. The restrictions on labor.: The Heritage Foundation and Dow Jones & Company. Chart B2 shows the clear relationship between high levels of economic freedom and high GDP per capita. 2007). It enjoys moderate growth and inflation but has been plagued by higher unemployment rates than it should naturally endure—which means. it is that capital does not stand still.EUROPE (REGION B) Europe is the birthplace of the modern industrial economy. D. put another way. Table B1 ranks the countries in the region from most free to least free based on their over- Chart B1: Europe Average Economic Freedom 100 80 60 40 20 0 1995 2007 Source: Tim Kane. all freedom scores. compared to the world average. The 41 countries in Europe are the most of any region and include nations as diverse as Russia.. Inc. that its economic model is failing to generate jobs year after year for almost one-tenth of willing workers.C.128 per capita annually. Switzerland. or more than twice the world average.

5 -0.8 -0.8 66. Kim R.6 1.3 39. Inc. Holmes.4 56.5 54.6 76.6 76.4 58.8 75.9 68.0 86.1 92. 2007 Index of Economic Freedom (Washington.7 57.6 40.6 71.7 78.6 76.0 61.4 75.0 70.2 69.7 91.0 86.3 41 Belarus 47.1 -1.8 53.7 0.5 76.5 34 Turkey 59.1 5 Estonia 78.4 90 90 80 70 90 90 80 70 80 80 50 70 70 80 70 80 50 80 70 70 80 70 70 50 60 60 50 60 60 70 60 60 50 50 50 40 60 60 40 50 10 90 90 90 90 90 90 90 90 90 80 90 90 90 50 90 70 90 70 30 30 50 50 90 70 70 70 50 50 30 30 30 30 50 50 50 50 30 10 30 30 20 Source: Tim Kane.8 70.0 -1.9 53.3 85.4 79.9 56.7 69.0 95.9 89.2 74.2 62.3 38 Bosnia & Herzegovina 54.1 27 Slovenia 63.6 71.6 76.2 26 France 66.1 0.2 74.0 86.7 74.6 76.6 86.2 -1.7 66.6 76.6 76.1 55.3 -0.1 97.5 52.8 71.8 77.0 54.0 90.6 77.8 32.2 23 Malta 67.9 62.1 0.8 33 Moldova 59.6 14 Lithuania 72.5 -0.7 51.6 76.0 66.3 88.6 76.1 3.6 70.0 76.8 63.6 79.0 40 Ukraine 53.9 -2..6 74.9 90.8 64.1 94.9 52.7 55.2 70.2 1.8 70.9 76.4 76.8 46.1 74.2 42.9 70.3 78.9 99.8 32.3 60.6 76.1 68.2 76.6 61.5 63.6 76.5 91.2 80.0 57.4 56.0 -0.9 -2.2 30 Albania 61.8 24 Portugal 66.2 65.0 95.2 85.2 73.9 -0.5 60.8 90.9 0.2 93.5 91.3 -2.7 77.6 72.6 91.0 67.0 79.0 60.6 45.1 79.: The Heritage Foundation and Dow Jones & Company.7 80.C.1 6 Denmark 77.6 76.1 65.5 10 Belgium 74.9 31.5 64.6 76.4 79.4 22 Latvia 68.6 76.1 77.3 32 Macedonia 60.2 53.8 87.3 36.3 80.0 82.2 80.2 86.7 19 Armenia 69.3 45.7 85.8 53.7 90.4 -1. D.3 0.4 74.3 66.6 66.1 0.9 66.8 36 Greece 57.1 74.4 65.8 76.1 87.1 -0.1 9 Finland 76.2 64.0 83.6 71.5 11 Germany 73.3 -5.0 46.3 3 Luxembourg 79.0 78.6 83.0 54.6 60.1 95.1 -0.1 46.Table B1: Economic Freedom Scores for Europe 2007 Regional Rank Monetary Freedom Change from 2006 Financial Freedom Business Freedom 2007 World Rank Property Rights Labor Freedom 82.0 81.3 89.3 79.3 35 Poland 58.4 70.6 91.0 73.9 54.4 51.7 80.2 -0.6 41.2 48.7 59.5 12 Cyprus 73.6 61.2 74.3 81.8 68.6 89.2 -0.9 48.7 69.6 2 Ireland 81.4 20 Georgia 68.7 91.1 60.1 18 Czech Republic 69.4 78.3 -0.7 Trade Freedom Fiscal Freedom Economic Freedom 2007 Freedom from Government Freedom from Corruption 86 74 85 91 64 95 86 97 96 74 82 57 92 48 87 70 89 43 29 23 43 42 66 65 50 75 61 50 40 24 30 27 29 35 34 43 34 29 24 26 26 Investment Freedom 90 90 90 70 90 80 90 60 70 90 90 70 80 70 70 70 50 70 60 60 70 70 50 70 70 50 70 70 60 60 50 50 30 50 50 50 50 50 30 30 20 6 7 8 9 12 13 14 15 16 17 19 20 21 22 25 27 30 31 32 35 40 41 42 43 44 45 58 60 62 66 67 71 81 83 87 94 109 115 120 125 145 1 United Kingdom 81.2 51.0 89.1 61.8 -1.1 70.9 71.3 4 Switzerland 79.5 76.2 -1.3 79.4 62.2 74.6 2.7 39 Russia 54. at www. 62 2007 Index of Economic Freedom .6 28 Italy 63.1 79.7 60.7 74.8 50.4 31 Romania 61.6 76.2 45.6 37 Croatia 55.2 48.6 0.0 2.2 80.4 29 Bulgaria 62.6 54.2 73.2 76.6 7 Netherlands 77.4 70.3 94.3 16 Spain 70.5 79.6 81.8 52.6 75.6 76.2 69.4 79.1 8 Iceland 77.2 92.1 -0.6 76.7 21 Slovakia 68.7 -0.4 61.0 76.0 -1. 2007).5 78.8 69.6 82.3 87.9 60. and Mary Anastasia O’Grady.7 81.6 77.8 88.7 -2.1 75.0 56.0 15 Austria 71.6 76.4 Country -0.6 77.2 84.1 76.3 90.3 91.1 70.9 17 Norway 70.4 0.7 25 Hungary 66.6 79.2 83.9 0.0 52.0 80.2 49.9 55.0 76.9 70.1 47.3 74.9 0.5 84.1 80.0 66.heritage.6 76.1 66.8 82.1 13 Sweden 72.org/index.2 81.9 93.1 62.2 62.9 79.2 79.7 68.0 79.9 67.5 45.0 41.6 61.

It is 12 points ahead in investment freedom. Many nations are tied with the top scores in property rights and financial freedom. which confirms how widespread good intentions are throughout the region. Holland. Norway leads in business and trade freedom. With its extensive free-market institutions. Georgia leads in labor freedom and fiscal freedom because of a combination of low taxes and a highly flexible labor market. which is the only region to have a distribution of economies that is skewed toward freedom. Its average score in business freedom is an impressive 13 percentage points ahead of any other region. Europe has higher than average scores in seven of the 10 economic freedoms. primarily. Europe has definitely benefited from economic competition over the centuries. Impressively for a post-Communist state. Chart B3 shows the distribution of countries across five different categories. respectively— are other former Communist nations that are rebuilding their economies. Europe suffers from the second-worst regional score in labor freedom and is dead last in fiscal freedom and freedom from government—the price of welfare states that are so large as a percentage of GDP. Chapter 4 63 . ranked 6 worldwide. Luxembourg at 8. A majority of the world’s 20 freest countries are in Europe. and Cyprus. round out the top 20. not least in France. The United Kingdom is the highestranking European country. and each country’s 2007 scores for each of the 10 economic freedoms. followed immediately by Ireland at 7. along with Germany. and 15 in property rights. Armenia and Macedonia—leaders in freedom from government and monetary freedom. 11 in financial freedom. and Switzerland at 9. 13 in freedom from corruption. Belgium. Strong state sectors and rigid labor markets have already prompted significant social turmoil. which may explain why economic repression is so rare in the West.rank. However. Scandinavian and Baltic countries.

heritage.C. Inc. Once population is taken into account. That was before Argentina’s economic implosion and the protectionist policy responses that followed. On that simple basis. and the overall regional population is 871 million: second only to Asia on both counts. Chart C1 shows the 1995–2007 time series of the average economic freedom score for the region. Only three countries from the Americas rank 2007 Index of Economic Freedom . D.org/index. The average population for each country is 30 million people. the country’s world rank.THE AMERICAS (REGION C) The Americas is one of the most economically diverse regions and presents a puzzle. Holmes. Among the five regions. implying a large freedom gap. 2007 Index of Economic Freedom (Washington. and each country’s 2007 scores for each of the 10 economic freedoms. the Americas has one of the lowest average per capita incomes and by far the slowest compound five-year growth rate. compared to the world average.. It also includes the change from last year ’s score. at www. however.: The Heritage Foundation and Dow Jones & Company. the distribution of countries across five different categories. Countries range from the hyperwealthy United States and developing powerhouse Brazil to the small island economies of the Caribbean and poor nations of Central America. With the world’s lowest average unemployment rate and peaceful relationships. Kim R. 2007). when it was the world leader. The Americas has been the second-highest region in terms of freedom since 1999. The puzzle is that the income rank is inverted if a population-weighted average is used instead of a simple average. the reality is that economies are stagnating. Across the region. it would seem poised for broadly shared economic success. even Europe. Table C1 ranks the countries in the region from most free to least free based on their overall freedom scores. income per capita is higher in the Americas than in any other region. Chart C3 shows 64 Chart C1: The Americas Average Economic Freedom 100 80 60 40 20 0 1995 2007 Source: Tim Kane. and Mary Anastasia O’Grady. the region has performed well. notably the weakened average trade score. The recent rise of populists like Evo Morales and Hugo Chávez threatens to widen the freedom gap in the Americas even more. All this statistical evidence means that the smaller nations around the Western Hemisphere seem to be stuck in poverty traps. Chart C2 shows the clear relationship between high levels of economic freedom and high GDP per capita.

7 59.3 90.3 89. D.2 55.1 82.2 74.7 88.6 79.8 -2.8 86.4 82.5 61.2 60.4 -0.1 63.3 75.3 71.7 62.3 97.8 67.3 42.6 79.3 69.3 58.6 57..4 69.2 56.2 1.6 48.7 55.9 -0.6 72.4 83.6 82.9 65.6 60.7 54.7 78.9 85.4 0.1 -0.4 70.3 85.2 48.3 55.8 62.0 67.2 79.6 92.7 85.4 56.1 -0.1 53.8 -1.5 10.6 -0.0 65.2 72.4 63.1 89.5 88.0 63.6 36.2 -4.4 86.2 -2.0 57.0 69.1 70.8 80.2 57.6 -2.2 60.3 -4.4 -1.9 69.8 78.6 65.9 85.0 62.2 35.2 72.7 93.0 57.7 29.0 74.1 61.0 78.6 78.4 2.8 91.1 63.0 66.7 65. 2007).0 79. Inc.2 66.2 71.7 73.8 77.2 74. at www.1 61.1 82.4 67.8 56.3 78.8 65.5 47.5 85.9 66.4 69.2 64.0 76.2 79.Table C1: Economic Freedom Scores for the Americas 2007 Regional Rank Change from 2006 2007 World Rank Property Rights Labor Freedom 92. Kim R.6 57.3 68.8 53.5 74.7 77.2 57.1 78.2 72.8 87.8 77.5 56.8 65.0 83.9 61.C.2 76.1 81.3 65.5 82.5 76.9 64.7 -0.0 74.4 57.5 85.3 71.0 28.org/index.0 82.0 37.4 63.8 10.4 86.0 59.2 47.9 60. 2007 Index of Economic Freedom (Washington.2 92.2 80.3 80.8 83.7 89.9 44.2 0.0 98.8 Financial Freedom 80 70 70 70 70 60 70 30 60 60 60 40 50 60 60 60 40 60 70 60 40 60 40 60 60 30 40 40 10 Country 90 90 90 70 80 90 50 70 50 30 50 50 50 30 40 30 50 30 30 40 30 30 30 30 30 50 10 30 10 Source: Tim Kane.3 78.1 62.5 96.6 2.7 72.4 0.7 1.5 70.4 62.8 -1.7 1.1 62.4 88.2 85.1 85.4 87.heritage.7 62.0 -2.5 76.7 -0.0 20.0 80.0 71.5 60.0 90.6 70.0 75.8 61.4 0.8 80.4 95.9 74.1 88.5 94.4 88. Chapter 4 .: The Heritage Foundation and Dow Jones & Company.2 74.8 86.2 69.3 95.6 -1.1 70.7 62.6 71.3 1.6 52.7 88. Holmes.4 71.6 70.2 72.9 90.3 83.8 86.5 71.3 76. and Mary Anastasia O’Grady.8 47.0 65.8 87.6 79.7 67.0 61.1 73.6 68.1 65.4 66.6 83.2 96.7 43.3 66.0 65 Trade Freedom Fiscal Freedom Economic Freedom 2007 Freedom from Government Freedom from Corruption 76 84 73 38 70 69 42 59 36 35 35 42 37 26 35 25 37 40 26 25 28 21 30 25 25 32 18 23 38 Investment Freedom 80 60 70 70 40 50 70 70 80 70 50 70 50 70 50 50 50 50 50 50 50 50 50 30 30 30 30 20 10 Monetary Freedom Business Freedom 4 10 11 23 24 28 29 33 46 47 49 51 56 61 63 68 70 73 76 90 95 99 100 108 112 133 135 144 156 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 United States Canada Chile Trinidad and Tobago Bahamas Barbados El Salvador Uruguay Jamaica Panama Mexico Costa Rica Belize Nicaragua Peru Guatemala Brazil Colombia Honduras Guyana Argentina Paraguay Dominican Republic Ecuador Bolivia Suriname Haiti Venezuela Cuba 82.1 68.0 52.7 -1.1 54.1 56.3 -1.9 70.

among the top 20 in the world: the United States (4).S. The U. with lighter trade. countries in the Americas perform better than the world average in eight of 10. 66 2007 Index of Economic Freedom . and regulatory burdens. the region’s countries are distributed in a more balanced fashion than are the countries of any other region. as well as strong labor freedoms. adaptive economy that remains one of the world’s premier financial markets.” Looking at each of the specific economic freedoms. representing weaker monetary policy and rule of law. Canada leads in freedom from corruption and (deviating from the European model) trade and business freedom. Corruption and inflation are the problem areas. financial freedom. investment. All but three countries receive an economic freedom score between 50 percent and 80 percent. such as Suriname for corruption and the Dominican Republic. is most free in investment freedom. almost like a bell curve. The deficits in freedom from corruption and monetary freedom are due to a few outliers. which is suffering from over 50 percent annual inflation. Guatemala (for its low government expenditures). property rights. The typical North/Central/South American nation stands out positively in terms of limited government taxation and expenditures. and the Bahamas (for low taxes) round out the rest of the best. The other five freedoms are also slightly stronger in the Americas than they are elsewhere. and roughly half fall in the middle category of “moderately free. Panama (for its low inflation rate). and labor freedom. The United States and Canada are the leaders in most of the 10 categories. Canada (10). and Chile (11). The result: a flexible. Indeed. financial.

compared to the world average. respectively. and Mary Anastasia O’Grady.MIDDLE EAST/NORTH AFRICA (REGION D) The Middle East/North Africa region encompasses some of the world’s most ancient civilizations. Chapter 4 67 . there is a correlation between freedom and prosperity.C. Libya.heritage. the regional GDP is dead center: lower than Europe and the Americas but higher than Asia and sub-Saharan Africa. Qatar.4 percent increases.: The Heritage Foundation and Dow Jones & Company. as the regional unemployment rate. At $7. The Middle East has a comparatively high GDP per capita. Israel. and the UAE Chart D1: Middle East/N. Kuwait.0 percent and 4. Inc. Despite the outflow of crude oil.org/index. 2007). at www. Structural problems clearly abound. Tunisia. Kim R. the Middle East/North Africa region is also the only Index area to increase its average economic freedom over the past year. Yet even in this region. Chart D1 shows the 1995–2007 time series of the simple average economic freedom score for the region. Paradoxically. Jordan. The difference between the highest GDP per capita and the lowest is enormous: an estimated $27. 2007 Index of Economic Freedom (Washington. and Egypt also improved their economic freedom scores. The ongoing transformation of innovative states in Bahrain. indicating a lack of economic dynamism. Using a population-weighted average. Today. marking a definite regional trend. the local populations experience extreme concentrations of wealth and poverty. is the highest in the world.6 percent. the Middle East is also second worst among the regions in exports and imports ($24 billion and $21 billion. Cursed in some ways by enormous natural oil resources. Yemen and Morocco made the biggest leaps forward with 3. Chart D2 shows the positive relationship between high levels of economic freedom and high GDP per capita. D. Africa Average Economic Freedom 100 80 60 40 20 0 1995 2007 Source: Tim Kane.002 per person. respectively). the Middle East remains central in the world’s affairs. most of the economies in this region are not free.. Qatar. which averages 13. Lebanon. however. Holmes. Stretching from Morocco’s Atlantic shores to Iran and Yemen’s beaches on the Arabian Sea.400 in Qatar versus $879 in Yemen. the people of the Middle East/North Africa region have the least economic freedom in the world. The United Arab Emirates (UAE).

7 39.9 95.2 61.4 61.8 72.1 34.C.1 -2. It also includes the change from last year ’s score.3 0.0 56.2 48.6 54. Israel. 2007 Index of Economic Freedom (Washington.2 52.7 61. D.3 59.org/index.8 0. Iran.9 80.3 4.7 39. and Jordan— three nations that are radically different politically but all have made a commitment to economic freedom—rank highest.2 82.3 65.2 43.8 93.7 57.7 64.6 47.0 50.0 54.5 1.2 56.: The Heritage Foundation and Dow Jones & Company.9 61.6 75.4 65.1 37.0 49.9 Financial Freedom 50 90 60 50 50 30 50 40 70 40 40 30 30 20 10 10 20 Country 70 60 50 50 50 50 50 40 30 50 30 30 40 30 30 10 10 Source: Tim Kane. may yet light the way for economic growth regionally.5 80. at www.9 99.0 60.3 46.0 67. a group of fairly disparate nations that are united by their lack of economic or political liberalism.2 1.3 64.2 69.0 49.0 99.4 29.5 79.6 82.7 49.0 80.4 75.9 20. Two leading oil-producing nations—Oman and Kuwait—round out the top five.4 70.5 84.2 0.6 64.7 67.9 73.1 57.2 81.1 73.9 99. Chart D3 shows 2007 Index of Economic Freedom .3 60.0 77.8 53.7 80.5 88.6 88.4 92.2 69.3 -0. Bahrain.1 83.4 53.4 51.8 23.1 76.2 73.1 83. Inc.3 52.8 -2.4 3.7 1. the country’s world rank.7 56.9 78.9 41.4 64.2 69.8 53.0 -1.8 71.9 69.1 1.6 72.8 87.1 54.8 60.6 67.2 20. Kim R.4 60.9 73..6 1.5 59.3 78.9 74.3 83.8 99.heritage.Table D1: Economic Freedom Scores for the Middle East and North Africa 2007 Regional Rank Change from 2006 2007 World Rank Property Rights Labor Freedom 70.4 68.7 60.2 56.0 99.1 40.0 63.9 60.3 68.7 -2. and Libya. Table D1 ranks the countries in the region from most free to least free based on their 68 overall freedom scores. and Mary Anastasia O’Grady.2 52.2 74.9 57.8 99.0 1.8 80.0 75.0 72. Holmes.4 52.6 0.6 88.1 78. 2007).0 56. and each country’s 2007 scores for each of the 10 economic freedoms.8 63.6 68.0 Trade Freedom Fiscal Freedom Economic Freedom 2007 Freedom from Government Freedom from Corruption 63 58 57 63 47 49 59 62 31 34 32 27 34 28 34 29 25 Investment Freedom 70 50 50 50 50 30 30 30 30 30 70 50 50 50 30 10 30 Monetary Freedom Business Freedom 37 39 53 54 57 69 72 74 77 85 96 122 127 134 142 150 155 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Israel Bahrain Jordan Oman Kuwait Tunisia Qatar UAE Lebanon Saudi Arabia Morocco Yemen Egypt Algeria Syria Iran Libya 68.3 84.0 67.6 60.9 63.2 80. The lowest ranking countries are Syria.

categorizing 12 of the 17 countries as oil exporters (with such exports in excess of 10 percent of total GDP) and the other five as non-oil countries. To determine whether this is so. a level reached because of the extremely low income taxes common to oil kingdoms. using a population-weighted average. even the process of extracting the oil is in the hands of foreigners. It requires no investment in labor. Kuwait. and the UAE (32 percent). but oil does not generate the incentives needed for societies to create those freedoms. Algeria (45 percent). no investment in humans. Fiscally. and Tunisia are the last countries in the top 70. and Jordan is ranked 53. Oman (49 percent). Oil-exporting states top the five factors.4 percent average score is well above the world average of 82. and only a marginal amount of investment in the land. Libya (33 percent). Saudi Arabia (43 percent). comes from the ground.” which holds that natural resource wealth can inhibit the development of other sectors by skewing wages. Bahrain is ranked 39. Oil states need flexible labor markets to hire foreign workers. developing human capital in order to create value. its 90. Chapter 4 69 . we divided the region into two halves. Israel. the region’s most free nation. The lack of economic freedom reflects the region’s sluggish economic growth and hints at the reason why its GDP per capita lags behind the rest of the world. This means that people must be invested with skills. however. Oman. The Middle East’s stunted economic growth may be due to its over-reliance on oil wealth. The Middle East is the absolute world leader in only one category: fiscal freedom. The Middle East does not have any countries in the ranks of the world’s 20 most free. Oil revenue. In most Gulf states. resource-poor countries must give their citizens a certain amount of economic freedom in order to create a living for themselves. although their growth rates have been insignificantly lower.8 percent. such as monetary freedom and freedom from corruption—a result that may reflect the measures regional leaders are taking to cut back on bribery and government malfeasance. The most oildependent economies in the Middle East are Qatar (60 percent). Israel is the leader in half of the categories. Bahrain is moving toward a more business-friendly environment. They also have lower inflation and slightly better employment and income levels. is ranked 37 globally. People need different freedoms to be productive. In contrast. possibly influenced by the success of the Dubai model. The region does score above the world average in other areas. Our analysis reveals that the non-oil countries have 10 percentage points more economic freedom.the distribution of countries across five different categories. Economists subscribe to a theory known as the “Dutch disease. with Kuwait as the leader in fiscal freedom. on the other hand. and their governments require little tax revenue.

than any other region even though it has just one-fifth the population of Asia.: The Heritage Foundation and Dow Jones & Company. A majority of nations are ranked “mostly unfree. Africa’s overall level of economic freedom is weaker than any other region’s and has even declined over the past year. Chart E3 shows the distribution of countries across five different categories. AIDS is a continuing burden.7 points among freedom scores. Chart E1 shows the 1995–2007 time series of the average economic freedom score for the region. Nevertheless.SUB-SAHARAN AFRICA (REGION E) Sub-Saharan Africa is well known as the poorest and most violent region of the world. Unsurprisingly.5 percent. is ranked 52 globally. Unemployment hovers at 10. are globally ranked 34 and 38. Average GDP per capita is only $1. respectively.heritage. Africa receives more absolute foreign aid. compared with the world average. Chart E2 shows the clear relationship between high levels of economic freedom and high GDP per capita. Unlike regions that have a diverse range of free-market economies. at www. both multilateral and bilateral.984—the lowest of any region and barely one-tenth of the average incomes in Europe and the Americas. Holmes.” with the balance split evenly between “moderately free” and “repressed. D. there are some success stories.. It also includes the change from last year ’s score. Mauri70 Chart E1: Sub-Saharan Africa Average Economic Freedom 100 80 60 40 20 0 1995 2007 Source: Tim Kane. Africa’s most free countries. and they usually involve countries with greater freedom. and Mary Anastasia O’Grady. in sub-Saharan Africa there are only distinctions among less free economies. It also seems to be the one region that has been slipping further behind over the past half-century rather than advancing in terms of popular material well-being. South Africa. 2007). 2007 Index of Economic Freedom (Washington. Mass unemployment is common. Kim R. which is the smallest deviation of any region.” Reflecting the consistency of Africa’s chronic problems is a standard deviation of 6. Civil war flares sporadically from the Horn of Africa to the Atlantic Coast. the third-highest ranked African nation. tius and Botswana. the country’s world rank. Table E1 ranks the countries in the region from most free to least free based on their overall freedom scores.C. Inc.org/index. 2007 Index of Economic Freedom . and the 15 percent average inflation rate is twice as high as that of the next worst region. and each country’s 2007 scores for each of the 10 economic freedoms.

8 58.9 37.4 82.9 40.8 1.9 77.5 76.4 57.9 38.4 58.7 77.0 74.6 64.6 53.4 64.6 52.8 54.2 53.7 78. and Mary Anastasia O’Grady.7 73. Republic of Zimbabwe 69.8 46.9 57.6 -1.9 73.1 50.3 79.0 81.4 78.4 3.4 50.4 39.8 76. at www.7 53.6 60.4 58.6 1.6 89.7 44.9 49.6 1. Kim R.5 77.4 74.2 45.9 77.4 58.5 44.2 72.5 66.5 82.5 69.5 70.1 38.2 68.6 56. D.1 48.4 85.9 58.4 86.6 70.9 70.8 -3.5 53.5 83.5 55.6 -0.8 48.0 83.2 53..9 84.8 78. Holmes.5 43.5 51.8 74.8 82.5 1.1 63.8 79.4 55.9 83.9 59.0 57.2 71 Trade Freedom Fiscal Freedom Economic Freedom 2007 Freedom from Government Freedom from Corruption 42 59 45 43 25 27 28 21 32 30 40 26 27 28 29 19 28 30 34 29 22 22 34 29 24 30 19 29 30 19 21 30 30 24 23 17 10 20 23 26 Investment Freedom 70 70 50 40 50 50 70 50 50 50 50 50 50 50 50 40 50 30 40 30 50 50 30 50 50 60 30 40 50 30 30 40 30 30 30 40 40 20 30 10 Monetary Freedom Business Freedom 34 38 52 55 59 64 65 82 86 88 91 92 93 101 103 105 106 111 113 114 116 117 118 123 124 126 128 129 130 131 136 137 139 141 146 147 148 149 151 154 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 Mauritius Botswana South Africa Namibia Uganda Swaziland Madagascar Kenya Senegal Cape Verde Ghana Zambia Gambia Mozambique Tanzania Ivory Coast Malawi Guinea Burkina Faso Benin Ethiopia Cameroon Lesotho Mali Niger Mauritania Equatorial Guinea Gabon Djibouti Nigeria Rwanda Central African Rep.8 65.0 59.6 -2.6 90.3 76.9 76.7 73.4 72.1 66.3 3.8 60.6 54.8 54.3 84.2 50.2 76.7 52.6 77.2 62.4 47.5 87.1 63. Togo Sierra Leone Burundi Chad Guinea-Bissau Angola Congo.5 84.5 53.8 43.C.7 47.8 -0.3 - Financial Freedom 60 70 60 60 70 50 50 50 50 50 50 50 60 50 50 70 50 60 50 60 20 60 50 40 50 50 60 40 60 50 40 40 30 40 30 50 40 40 30 20 Country 60 70 50 30 30 50 50 40 50 70 50 40 30 30 30 30 40 30 30 30 30 30 40 30 30 30 30 40 30 30 30 20 30 10 30 20 20 20 10 10 Source: Tim Kane.5 44.6 66.0 68.5 72.0 -2.1 71.0 73.2 63.4 61.6 61.2 58.org/index.3 92.4 54.9 48.6 78.3 49.5 79.3 42.2 58.4 42.5 81.0 81.0 77.9 78.3 -2.4 26.4 56.1 45.5 79.1 57.2 54.8 67.5 82. Chapter 4 .2 85.6 70.9 68.6 87.9 45.2 87.0 -2.5 -1.0 44.4 76.6 83.2 -0.2 75.4 56.4 88.8 38.7 72.7 84.4 37.5 40.8 48.9 76.9 79.0 -1.2 2.3 80.6 57.heritage.4 -0.9 78.0 53.5 82.5 57.2 53.8 2.8 71.2 79.4 61.9 56.6 52.9 83.1 69.9 25.7 82.0 35.4 41.8 78.3 70.0 60.2 94.0 68.5 54.2 90.4 55. Inc.3 -2.1 37.0 89.4 -0.0 86.0 51.2 33.0 -2.5 86.9 -2.0 80.2 49.9 -1.3 47.6 44.4 1.8 -2.0 61.4 81.3 1.6 46.7 73.6 83.9 63.8 78.4 46.1 74.7 86.7 0.9 56.0 54.4 41.4 80.7 80.4 59.2 58.0 58.2 85.1 77.5 40.5 87.0 50.1 54.0 57.4 1.7 47.1 81.8 63.7 43.9 74.2 50.0 72.2 55.2 60.2 59.4 76.0 52.1 -0.2 70.5 48.6 59.2 76.8 73.4 81.8 68.2 40.6 60.4 80.6 52.3 90.1 27.9 87.: The Heritage Foundation and Dow Jones & Company. 2007).4 -2. 2007 Index of Economic Freedom (Washington.5 50.1 53.1 65.9 45.2 37.6 85.3 70.7 79.7 80.2 55.5 45.8 59.5 55.2 52.2 -4.5 1.3 85.6 54.0 70.0 54.5 -1.4 50.8 82.6 87.5 75.6 58.4 45.4 58.4 54.Table E1: Economic Freedom Scores for Sub-Saharan Africa 2007 Regional Rank Change from 2006 2007 World Rank Property Rights Labor Freedom 67.4 -1.0 88.5 -0.7 88.1 55.6 56.9 -1.6 79.0 44.1 0.8 79.7 54.6 31.6 68.4 42.3 81.4 0.1 50.2 37.7 43.6 59.

Zimbabwe’s rate of inflation. it is unlikely that even the liberalizing tendencies of Mauritius or Botswana can have a significant enough statistical impact to lift Africa out of its lastplace status. The single factor on which the region rates higher than the world average is in terms of government expenditure. The signs of government failure are overwhelming in the heart of Africa and in some cases are so severe that the next few years will be inevitably bleak. for example. eight of the 20 countries ranked “repressed” around the world are located in this region. freedom from corruption. which is odd because heavy labor regulations are much more common among higher-income nations. it is worse in terms of taxation. and six for property rights. Angola. It appears that the countries of subSaharan Africa have been saddled with the worst policies of their former European colonizers but none of the prosperity. Some of the gaps between sub-Saharan Africa’s score and the world average score are especially striking: almost 10 points for business freedom. 2007 Index of Economic Freedom . showing a strong commitment to free trade and pro-business regulations. Within the region. 10 for freedom from corruption. and unemployment runs at 80 percent. Labor freedom is perversely restricted in the region. With political instability rampant in the region. 72 scores highest in fiscal freedom because of its low tax burden. Namibia scores highest in business and trade freedom. although Mauritius is freest overall. Botswana is freest in the most absolute categories. as an oil-exporting nation. is 350 percent.On the other hand. and business freedom. and Uganda has the highest labor freedom. Ironically. giving it the highest score in monetary freedom. however. Chart E4 shows regional scores in each of the 10 economic freedom categories. Sub-Saharan Africa is also ranked last in seven of the 10 economic freedom categories and performs especially poorly in terms of property rights. Cape Verde has the lowest absolute inflation.

Chapter 5

The Countries

his chapter is a compilation of the 161 countries graded in the Index of Economic Freedom. Only 157 countries receive total scores, because grading has been suspended for four countries (the Democratic Republic of Congo, Iraq, Sudan, and Serbia–Montenegro). Each graded country is given a percent score ranging from 0 to 100 for all 10 factors of economic freedom, and these scores are then averaged (using equal weights) to get the country’s final Index of Economic Freedom score. In addition to these factor and overall scores, each summary includes a brief introduction that describes the country’s economic strengths and weaknesses, as well as its political and economic background, and a statistical profile with the country’s main economic indicators. These statistics and their sources are outlined in detail below. Two charts are included on each country page. The first shows a time series of the overall economic freedom score for the country for each year, from 1995 through 2007, compared

T

Chart 1: Angola’s Economic Freedom
The economy is 43.5% free
100

80

Sub-Saharan Africa Average = 54.7 World Average = 60.6

60

40

20

0

1995

2007

Source: Tim Kane, Kim R. Holmes, and Mary Anastasia O’Grady, 2007 Index of Economic Freedom (Washington, D.C.: The Heritage Foundation and Dow Jones & Company, Inc., 2007), at www.heritage.org/index.

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Chart 2: Angola’s 2007 Economic Freedom Scores
ANGOLA’S TEN ECONOMIC FREEDOMS
Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 33.9 68 90 38.4 47.7 20 40 20 20 56.7
0 50 100

recent data are widely available) and in current 2004 U.S. dollars, also the latest available. The few cases in which no reliable statistical data were available are indicated by “n/a.” Definitions and sources for each category of information are as follows. Population: 2004 estimate from World Bank, World Development Indicators Online. Another major source is U.S. Central Intelligence Agency, The World Factbook 2006. For some countries, another source is the country’s statistical agency and/or central bank. GDP: Gross domestic product—total production of goods and services—expressed as purchasing power parity (PPP) in current 2004 U.S. dollars. The primary source for GDP data is World Bank, World Development Indicators Online. Other sources include U.S. Central Intelligence Agency, The World Factbook 2006; the country’s statistical agency; and the country’s central bank. GDP growth rate: Annual percentage growth rate of real GDP derived from constant national currency units, based on country-specific years. Annual percent changes are yearon-year. The primary source is International Monetary Fund, World Economic Outlook Database, 2006, which has growth data from 2004. Secondary sources include World Bank, World Development Indicators Online; Economist Intelligence Unit, Country Reports, 2005 and 2006; the country’s statistical agency; and the country’s central bank. GDP five-year compound annual growth: The geometric average growth rate measured over a specified period of time. The compound annual growth rate is measured using data from 2000 to 2004, based on the total percentage growth rate of real GDP expressed in constant national currency units, based on country-specific years. It is calculated by taking the nth root of the total percentage growth rate, where n is the number of years in the period being considered. The primary source for 2004 data is International Monetary Fund, World Economic Outlook Database, 2006. GDP per capita: Gross domestic product expressed as PPP in current 2004 U.S. dol-

100 = most free,

= world average

Source: Tim Kane, Kim R. Holmes, and Mary Anastasia O’Grady, BUSINESS FREEDOM — 33.9% 2007 Index a business takes an average of 124 days,Heritage Starting of Economic Freedom (Washington, D.C.: The compared Foundation and Dow Jones & Company, Inc., 2007), at www.herito the world average of 48 days. This makes entrepreneurtage.org/index. ship far too difficult to enable a dynamic official economy.

to the world average and regional average. In many cases, a country is not graded continuously for all 13 years, often because grading did not begin until 1996 and frequently because of violence or natural disaster. This year, four countries are not graded, so their respective charts show a line that stops in 2005 or earlier. The second chart for each country graphs each of the 10 freedom scores for 2007 using horizontal bars. A hash mark is included to show the world average so that one can quickly identify the strengths and weaknesses of economic freedom in each country according to the 10 different component freedoms. The charts for Angola presented here are examples of what the reader will see on each country page. To assure consistency and reliability for each of the 10 factors on which the countries are graded, every effort has been made to use the same source for each country; when data are unavailable from the primary source, secondary sources are used as explained in the chapter on methodology.

DEFINING THE “QUICK FACTS”
Each country page includes “Quick Facts” with 16 different categories of information: population size, macroeconomic data, official development assistance, and more. Unless otherwise indicated, the data in each country’s profile are for 2004 (the year for which the most
74

2007 Index of Economic Freedom

lars divided by total population. The sources for these data are World Bank, World Development Indicators Online; U.S. Central Intelligence Agency, The World Factbook 2006; and the country’s statistical agency or central bank. Unemployment rate: A measure of the portion of the workforce that is not employed but is actively seeking work. The primary sources are Economist Intelligence Unit, Country Reports, 2005 and 2006, and Country Profiles, 2004–2005 and 2005–2006; U.S. Central Intelligence Agency, The World Factbook 2006; the country’s statistical agency; and the country’s labor ministry. Inflation: The annual percent change in consumer prices as measured from 2003 to 2004. The primary source for 2004 data is International Monetary Fund, World Economic Outlook Database, 2006. The secondary sources are Economist Intelligence Unit, Country Reports, 2005 and 2006, and Country Profiles, 2004–2005 and 2005–2006; U.S. Central Intelligence Agency, The World Factbook 2006; the country’s statistical agency; and the country’s central bank. Foreign direct investment (FDI): This series indicates total annual flow of net FDI, which is the sum of FDI inflows less the sum of FDI outflows in 2004. Data are in current 2004 U.S. dollars. FDI flows are defined as investments that acquire a lasting management interest (10 percent or more of voting stock) in a local enterprise by an investor operating in another country. Such investment is the sum of equity capital, reinvestment of earnings, other longterm capital, and short-term capital as shown in the balance of payments and both shortterm and long-term international loans. Data are from United Nations Conference on Trade and Development, World Investment Report 2005; World Bank, World Development Indicators Online; the country’s statistical agency; and the country’s central bank. Official development assistance (ODA): Grants or loans to developing countries and territories, as defined by part I of the Development Assistance Committee (DAC) list of aid recipients, that are undertaken either by the official sector, with promotion of economic development and welfare as the main objective, or on concessional financial terms (a loan

that has a grant element of at least 25 percent). Aid includes technical cooperation as well as financial flows. Grants, loans, and credits for military purposes are excluded. Transfer payments to private individuals (e.g., pensions, reparations, or insurance payouts) are usually not counted. Data are listed in current 2004 U.S. dollars. The primary source is Organisation for Economic Co-operation and Development, Official Development Figures for 2004 (on-line). • Multilateral: In DAC statistics, this includes international institutions with governmental membership that conduct all or a significant part of their activities in favor of development and aid recipient countries. They include multilateral development banks (e.g., the World Bank and regional development banks), United Nations agencies, and regional groupings. A contribution by a DAC member to such an agency is deemed multilateral if it is pooled with other contributions and disbursed at the discretion of the agency. • Bilateral: Bilateral flows are provided directly by a donor country to an aid recipient country. External Debt: Debt owed to non-residents that is repayable in foreign currency, goods, or services. It is the sum of public, publicly guaranteed, and private non-guaranteed long-term debt, use of International Monetary Fund credit, and short-term debt. Short-term debt includes all debt having an original or extended maturity of one year or less and interest in arrears on long-term debt. Long-term debt is debt that has an original or extended maturity of more than one year. It has three components: public, publicly guaranteed, and private non-guaranteed debt. Public and publicly guaranteed debt comprises the long-term external obligations of public debtors, including the national government and political subdivisions (or an agency of either) and autonomous public bodies, as well as the external obligations of private debtors that are guaranteed for repayment by a public entity. Private non-guaranteed debt consists of the long-term external obligations of private debtors that are not guaranteed for repayment
75

Chapter 5

by a public entity. The data for 2004 are listed in current 2004 U.S. dollars, calculated on an exchange rate basis rather than PPP terms. The primary source is World Bank, World Development Indicators, 2006. The data for 2005 are from U.S. Central Intelligence Agency, The World Factbook 2006. Exports: The value of all goods and other market services, f.o.b. Included is the value of merchandise, freight, insurance, travel, and other non-factor services. Factor and property income, such as investment income, interest, and labor income, is excluded. Data are in current 2004 U.S. dollars. The primary source is World Bank, World Development Indicators Online. Other sources include Economist Intelligence Unit, Country Reports, 2005 and 2006, and Country Profiles, 2004–2005 and 2005–2006; U.S. Central Intelligence Agency, The World Factbook 2006; and the country’s statistical agency. Primary exports: The country’s four to six principal export products. Data for major exports are from U.S. Central Intelligence Agency, The World Factbook 2006. Imports: The value of all goods and other market services, f.o.b. Included is the value of merchandise, freight, insurance, travel, and other non-factor services. Factor and property income, such as investment income, interest, and labor income, is excluded. Data are in current 2004 U.S. dollars. The primary source is World Bank, World Development Indicators Online. Other sources include Economist Intelligence Unit, Country Reports, 2005 and 2006, and Country Profiles, 2004–2005 and 2005–2006; U.S. Central Intelligence Agency, The World Factbook 2006; and the country’s statistical agency.

Primary imports: The country’s six to eight principal import products. Data for major imports are from U.S. Central Intelligence Agency, The World Factbook 2006.

COMMONLY USED ACRONYMS
CIS: Commonwealth of Independent States, consisting of Azerbaijan, Armenia, Belarus, Georgia, Kazakhstan, the Kyrgyz Republic, Moldova, Russia, Tajikistan, Turkmenistan, Uzbekistan, and Ukraine. EU: European Union, consisting of Austria, Belgium, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Slovakia, Slovenia, Spain, Sweden, and the United Kingdom. IMF: International Monetary Fund, established in 1945 to help stabilize countries during crises and now with 181 member countries. MERCOSUR: Customs union that includes Brazil, Argentina, Uruguay, Paraguay, and Venezuela. OECD: Organisation for Economic Co-operation and Development, an international organization of developed countries, founded in 1948, that now includes 30 member countries. SACU: Southern African Customs Union, consisting of Botswana, Lesotho, Namibia, South Africa, and Swaziland. VAT: Value-added tax. WTO: World Trade Organization, founded in 1995 as the central organization dealing with the rules of trade between nations and based on signed agreements among 149 member countries.

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2007 Index of Economic Freedom

ALBANIA
Rank: 66 Regional Rank: 30 of 41

A

lbania’s economy is 61.4 percent free, according to our 2007 assessment, which makes it the world’s 66th freest economy. Albania is ranked 30th freest among the 41 countries in the European region. The level of economic freedom decreased by 0.6 percentage point during the past year, partially reflecting new methodological detail, leaving Albania below the regional average. Comparatively, Albania’s freedom level is on par with other developing Balkan states like Croatia and Macedonia but still higher than that of Greece, a member of the European Union. Fiscal freedom, freedom from government, and monetary freedom all rate highly, but the overall score is reduced by Albania’s poor performance in property rights and freedom from corruption. The unimpressive score in property rights is largely a result of political interference in the judiciary, leading to erratic enforcement of the country’s laws. Albania’s economic freedom ranks above the world average, and its score has risen over the past seven years, a noteworthy achievement in a region characterized by federal separatism and instability. If Albania maintains its impressively low tax levels while doing more to combat corruption, its score should continue to rise. BACKGROUND: In 1992, Albania ended nearly 50 years of Communist rule. The 1990s were a period of transition, but economic growth and reform have advanced since then. In July 2006, Albania signed a Stabilization and Association Agreement with the European Union as the first step toward EU membership. The agricultural sector is the largest source of employment, but services and the increased production of chrome and chromium products have led to steady economic growth. In 2005, the Organisation for Economic Co-operation and Development reported that informal activity may exceed 50 percent of the economy.

The economy is 61.4% free
100

80
@ @ @@ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @@ @ @@ @ @ @

60

40
Europe Average = 67.5 World Average = 60.6

20

0

1995

2007

QUICK FACTS
Population: 3.1 million GDP (PPP): $15.5 billion 5.9% growth in 2004 5.7% 5-yr. comp. ann. growth $4,978 per capita Unemployment: 14.4% Inflation (CPI): 2.3% FDI (net inflow): $426 million (gross) Official Development Assistance: Multilateral: $137 million Bilateral: $250 million (16% from the U.S.) External Debt: $1.6 billion Exports: $1.2 billion Primarily textiles and footwear, tobacco, vegetables, food, beverages, machinery Imports: $2.6 billion Primarily chemicals, machinery and equipment, minerals, fuels, electricity

How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage.org/index.

77

ALBANIA’S TEN ECONOMIC FREEDOMS
Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 56.1 63.2 91.5 77.7 80.7 60 70 30 24 60.6
0

INVESTMENT FREEDOM — 60%
Foreign and domestic firms are treated equally under the law, and nearly all sectors of the economy are open to foreign investment. Foreigners may lease agricultural land for up to 99 years but may not purchase it. Political instability, corruption, and a thriving informal market discourage foreign investment and undermine the implementation of reform. The International Monetary Fund reports that both residents and non-residents may hold foreign exchange accounts. The Bank of Albania, through licensed agencies, monitors and reviews the purchase of capital and money market instruments, outward direct investment, most credit operations, and residents’ purchase of real estate abroad.
L L L L L

50

L L L L L
100

100 = most free,

= world average

BUSINESS FREEDOM — 56.1%
Starting a business takes an average of 39 days, compared to the world average of 48 days. To maximize entrepreneurship and job creation, it should be easier to start a company. Obtaining a business license can be difficult because of regulations, and closing a business is very difficult. Regulations are sometimes inconsistent, causing unreliability of interpretation. Businesses have difficulty getting copies of laws and regulations. The overall freedom to start, operate, and close a business is limited by the national regulatory environment.

FINANCIAL FREEDOM — 70%
Albania’s financial sector is small and largely cash-based. Banking dominates the sector and is overseen by the central Bank of Albania. The government introduced deposit insurance in 2004. In December 2005, the government sold its stake in the last partially state-owned bank. There are 17 banks, of which 15 are foreign-owned. The non-bank financial sector is rudimentary, and government enforcement of financial regulations can be weak. The government has separated the Tirana Stock Exchange from the central bank, giving the country an independent stock exchange. In October 2003, the government sold a stake in the stateowned insurance company. The insurance sector remains underdeveloped.

TRADE FREEDOM — 63.2%
Albania’s weighted average tariff rate in 2002 was 8.4 percent. There are no official non-tariff barriers, but administrative bureaucracy can delay trade and increase costs. Consequently, an additional 20 percent is deducted from Albania’s trade freedom score.

PROPERTY RIGHTS — 30%
Albania’s judicial system enforces the law weakly. Judges are supposed to be independent, but several are corrupt, having been appointed strictly for political reasons. Organized crime is a strong deterrent to the administration of justice. Judges are subject to intimidation, pressure, and bribery, and the pace of judicial reform remains very slow.

FISCAL FREEDOM — 91.5%
Albania enjoys low income tax rates, which enhance incentives for entrepreneurs and workers. The top income tax rate is 20 percent. In January 2006, the government reduced the flat corporate tax rate by 3 percentage points to 20 percent. Other taxes include a value-added tax (VAT), a property tax, and a vehicle tax. In the most recent year, overall tax revenue as a percentage of GDP was 21.7 percent.

FREEDOM FROM CORRUPTION — 24%
Corruption is perceived as widespread. Albania ranks 126th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005.

FREEDOM FROM GOVERNMENT — 77.7%
Total government expenditures, including consumption and transfer payments, are moderate. In the most recent year, government spending equaled 28.8 percent of GDP, and the government received 8.8 percent of its revenues from state-owned enterprises and government ownership of property.

LABOR FREEDOM — 60.6%
The labor market operates under inflexible employment regulations that hinder overall productivity growth. The non-salary cost of employing a worker is very high, and dismissing a redundant employee is relatively costly. The unemployment insurance system, funded primarily by employer contributions, provides for approximately 17 percent of an average worker’s yearly salary.

MONETARY FREEDOM — 80.7%
Inflation is relatively low, averaging 2.2 percent between 2003 and 2005. Relatively low and stable prices explain most of the monetary freedom score. An additional 10 percent is deducted from Albania’s monetary freedom score to adjust for price control measures that distort domestic prices for water, railway transport, and electricity.

78

2007 Index of Economic Freedom

ALGERIA
Rank: 134 Regional Rank: 14 of 17

A

lgeria’s economy is 52.2 percent free, according to our 2007 assessment, which makes it the world’s 134th freest economy. Its overall score is 1.1 percentage points lower than last year, partially reflecting new methodological detail. Algeria is ranked 14th out of 17 countries in the Middle East/North Africa region. Algeria scores high in several of the 10 factors of economic freedom, such as business freedom, fiscal freedom, and monetary freedom. On average, it takes far less time to start a business in Algeria than it does elsewhere in the world. Algeria has a high income tax rate but, because of widespread poverty and substantial oil income, collects only a small proportion of GDP in taxes. Inflation is relatively low, and prices are relatively stable, although the government does subsidize various necessities. In other areas, the outlook is not so positive. Algeria has significant problems with the overall size of government, banking restrictions, corruption, and political interference in the judiciary. The government has been slow to implement its privatization plan, and state-owned companies still dominate several critical industries, such as banking. BACKGROUND: Algeria gained its independence from France in 1962 and imposed a socialist economic model that stifled economic growth and wasted its huge oil and gas wealth: Algeria is the world’s second-largest exporter of natural gas and has the world’s seventh-largest natural gas reserves and 14th-largest oil reserves. In 1992, Islamic radicals launched a brutal civil war that claimed more than 100,000 lives. President Abdelaziz Bouteflika negotiated a fragile peace accord and has delivered greater political stability. His government has made slow progress on liberalization, privatization, and attracting foreign investment, and the economy has benefited from high world energy prices.

The economy is 52.2% free
100

80
@ @ @

Mideast/North Africa Average = 57.2 World Average = 60.6
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60

40

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2007

QUICK FACTS
Population: 32.4 million GDP (PPP): $213.7 billion 5.2% growth in 2004 4.3% 5-yr. comp. ann. growth $6,603 per capita Unemployment: 20.9% (2003) Inflation (CPI): 3.6% FDI (net inflow): $624 million Official Development Assistance: Multilateral: $90 million Bilateral: $299 million (1% from the U.S.) External Debt: $22.0 billion Exports: $32.2 billion Primarily petroleum, natural gas, petroleum products Imports: $18.0 billion Primarily capital goods, food, consumer goods

How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage.org/index.
79

ALGERIA’S TEN ECONOMIC FREEDOMS
Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 73.7 56 82.6 47.9 80.6 50 20 30 28 53.7
0

INVESTMENT FREEDOM — 50%
Foreign investors receive nondiscriminatory treatment. In August 2001, the National Investment Development Agency was created to simplify investment, but investors still face complex and burdensome procedures. Foreign ownership of pipelines is prohibited. Foreign exchange and capital transactions are subject to numerous restrictions. The International Monetary Fund reports that both residents and non-residents may hold foreign exchange accounts, subject to some restrictions. Payments and transfers are subject to various limits, approvals, surrender requirements, and restrictions. Purchase, sale, or issue of capital market securities is permitted through an authorized intermediary.
L L L L L

50

L L L L L
100

100 = most free,

= world average

BUSINESS FREEDOM — 73.7%
Starting a business takes an average of 24 days, compared to the world average of 48 days. To maximize entrepreneurship and job creation, it should be easier to start a company. Obtaining a business license can be difficult because of regulations, but closing a business is relatively easy. With more than 400 legislative and regulatory texts, however, business regulations can be complex and technical. The overall freedom to start, operate, and close a business is relatively well protected by the national regulatory environment.

FINANCIAL FREEDOM — 20%
The government exerts heavy influence on the financial sector. There were 15 private banks in 2004, but six stateowned banks accounted for over 86 percent of total bank assets in 2003. While banking sector reform and privatization has ostensibly been a goal since 1999, progress has been slow. State dominance of banking has undermined private banks and led to several bankruptcies. The government intervenes in credit markets, including subsidizing credit for loss-making public enterprises. Governance of the financial sector is weak. The insurance sector is small and dominated by six state-owned firms, although private insurers are permitted and six private insurers were operational in 2004. The stock exchange is extremely small.

TRADE FREEDOM — 56%
Algeria’s weighted average tariff rate in 2003 was 12 percent. Non-tariff barriers include customs clearance procedures, some import and export controls, and regulatory restrictions that delay trade and increase costs. Consequently, an additional 20 percent is deducted from Algeria’s trade freedom score.

PROPERTY RIGHTS — 30%
The constitution provides for an independent judiciary, but the judicial environment is inefficient and, in fields like the adjudication of intellectual property disputes, suffers from a lack of trained magistrates. The judiciary is influenced by the executive branch and the Ministry of Interior.

FISCAL FREEDOM — 82.6%
Algeria has a high income tax rate and moderate corporate tax rate. The top income tax rate is 40 percent, and the top corporate tax rate is 30 percent. Other taxes include a value-added tax (VAT), a tax on professional activity, and an apprenticeship tax. In the most recent year, overall tax revenue as a percentage of GDP was 10.8 percent.

FREEDOM FROM CORRUPTION — 28%
Corruption is perceived as widespread. Algeria ranks 97th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005.

FREEDOM FROM GOVERNMENT — 47.9%
Total government expenditures, including consumption and transfer payments, are moderate. In the most recent year, government spending equaled 34.6 percent of GDP, and the government received 72.6 percent of its revenues from state-owned enterprises and government ownership of property.

LABOR FREEDOM — 53.7%
The labor market operates under restrictive employment regulations that hinder employment and productivity growth. The non-salary cost of employing a worker is high, but dismissing a redundant employee is costless. Algeria’s unemployment insurance system, funded by workers and their employers only, offers benefits equaling about 38 percent of an average worker’s annual salary.

MONETARY FREEDOM — 80.6%
Inflation is relatively low, averaging 2.2 percent between 2003 and 2005. Relatively low and stable prices explain most of the monetary freedom score. Government policies distort prices through subsidies and direct controls on some commodities, such as agricultural goods. Consequently, an additional 10 percent is deducted from Algeria’s monetary freedom score to adjust for price control measures.

80

2007 Index of Economic Freedom

180 per capita Unemployment: n/a Inflation (CPI): 43. comp. Trade freedom is progressing. and overall tax revenues are low as a percentage of GDP. Angola faces serious economic problems in other areas. the government has worked to repair and improve Angola’s ravaged infrastructure and its weakened political and social institutions. but it receives overwhelmingly negative scores for most of its policies. petroleum. investment is basically unwelcome. Data are spotty for Angola because of a protracted civil war. petroleum products. which accounted for over 50 percent of gross domestic product and 78 percent of government revenues in 2005. ann. Angola remains poor. 81 . food. partially reflecting new methodological detail. diamonds. High international oil prices and rising oil production have led to strong economic growth in recent years. according to our 2007 assessment. The income tax rate is low.5% FDI (net inflow): $2 billion Official Development Assistance: Multilateral: $138 million Bilateral: $1 billion (12% from the U. but corruption and public-sector mismanagement remain common.6 @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ 60 40 @ @ @ @ @ @ 20 0 1995 2007 QUICK FACTS Population: 15.1 percentage point higher than last year. regulation chokes business.5 percent free. which makes it the world’s 149th freest economy. diamonds. vehicles.8 billion 11. coffee.5 million GDP (PPP): $33. and inconsistent. and political influence mars the judiciary.8 billion Primarily crude oil. hydroelectric potential. corruption is crippling. government size is excessive.5 billion Exports: $13. Its overall score is 0. textiles How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. but significant nontariff barriers on imports are still imposed. Commercial regulations are a major hindrance to opening and closing a business.9% 5-yr.S.org/index. Angola is also ranked 38th out of 40 countries in the sub-Saharan Africa region. when the country’s economically devastating 27-year civil war ended. The economy is 43. growth $2. and rich agricultural land. fish Imports: $10.ANGOLA Rank: 149 Regional Rank: 38 of 40 A ngola’s economy is 43. Inflation is high. medicines. but the country has attained a moderate degree of economic freedom despite a devastated infrastructure and a fledgling government. Since 2002. BACKGROUND: Despite extensive oil and gas resources. particularly in the oil sector. confusing regulations make operating a successful company difficult.7 World Average = 60.) External Debt: $9. Angola scores high in fiscal freedom and receives fairly positive scores in trade.5% free 100 80 Sub-Saharan Africa Average = 54.6 billion Primarily machinery and electrical equipment.1% growth in 2004 6.

7 0 INVESTMENT FREEDOM — 20% Angola’s Law on Private Investment provides equal treatment to foreign investors. these transactions require central bank approval and/or licensing.7% Inflation in Angola is high and unstable. Inconsistently enforced. government spending equaled 38. and close a business is seriously limited by the national regulatory environment. averaging 34.ANGOLA’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 33. internal public order. = world average BUSINESS FREEDOM — 33. an additional 20 percent is deducted from Angola’s trade freedom score. This makes entrepreneurship far too difficult to enable a dynamic official economy.9 percent. The state remains heavily involved in the insurance sector. Angola ranks 151st out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. are high. and lowers the required investment.9 68 90 38. including consumption and transfer payments. the regulatory system has been vague and complicated. Angola’s legal and judicial system is not efficient in handling commercial disputes. While Angola has made solid progress in reforming its trade regime. FISCAL FREEDOM — 90% Angola has a low income tax rate but a high corporate tax rate. Government price controls are pervasive in many sectors of the economy. Some non-tariff barriers include subsidies. TRADE FREEDOM — 68% Angola’s weighted average tariff rate was 6 percent in 2005. procedures to register a foreign investment remain burdensome. and personal capital movements are subject to strict controls. Legal fees are high. an additional 15 percent is deducted from Angola’s monetary freedom score to adjust for the high economic cost of these price control measures. In most instances. L L L L L 50 L L L L L 100 100 = most free. import controls. customs barriers. FINANCIAL FREEDOM — 40% Angola’s financial system is small and underdeveloped but growing. which are slated for privatization. FREEDOM FROM CORRUPTION — 20% Corruption is perceived as widespread and hinders all other economic freedoms. The top income tax rate is 15 percent. Consequently. state security. LABOR FREEDOM — 56.8 percent between 2003 and 2005. In the most recent year. In the most recent year.7 20 40 20 20 56. Foreign investment in defense. and issues involving the enforcement and protection of intellectual property rights. PROPERTY RIGHTS — 20% The rule of law cannot be guaranteed through the local justice system. Other taxes include a fuel tax and a consumption tax.9% Starting a business takes an average of 124 days. but dismissing a redundant employee is relatively costly. The government has formally constituted Angola’s stock exchange with plans for it to be fully operational by the end of 2006. non-tariff barriers still impose a cost on trade. and closing a business is also very difficult. operate. Angola has been liberalizing the banking and insurance sectors in accordance with International Monetary Fund and World Bank advice. Consequently.9 percent of GDP. capital repatriation.4 47. real estate transactions. certain banking activities. The overall freedom to start. MONETARY FREEDOM — 47. and most businesses avoid taking disputes to court. which suffers from political interference. Angola has very rigid restrictions on increasing or contracting the number of working hours. overall tax revenue as a percentage of GDP was 6. and the administration of ports and airports is not explicitly prohibited but is somewhat off-limits. Relatively high and unstable prices explain most of the monetary freedom score. of which three were foreign-owned. The two state-owned banks. some prohibitive regulations and standards. 82 2007 Index of Economic Freedom . Obtaining a business license can be very difficult because of regulations. However. but financial governance remains poor. Available financial instruments are limited by the overall economic environment. Capital and money market transactions. simplifies investment regulations. control approximately 45 percent of banking assets. compared to the world average of 48 days. The non-salary cost of employing a worker is low. and the top corporate tax rate is 35 percent. FREEDOM FROM GOVERNMENT — 38. and the government received 79 percent of its total revenues from state-owned enterprises and government ownership of property. The banking sector in 2003 consisted of seven commercial banks.7% The labor market operates under restrictive employment regulations that hinder employment and productivity growth.4% Total government expenditures. including fuel and electricity.

On the labor side. employing and dismissing employees is complicated. freedom from government. primarily through price controls in some industries and the creation of state-owned enterprises. Property rights. Argentina is ranked 21st out of 29 countries in the Americas.2 percentage point higher than last year.0% growth in 2004 0. chemicals. The economy is 57. vehicles. feed. and motor vehicles. motor vehicles Imports: $28.7 billion Primarily edible oils.298 per capita Unemployment: 13. and expenditure is correspondingly low as well. but the principal industries are food processing and beverages. according to our 2007 assessment. partially reflecting new methodological detail.) External Debt: $169. and an economic recovery from the 2001 crisis rather than to sound government economic policies.3 billion Exports: $39. metal manufactures. Not surprisingly.6 20 0 1995 2007 QUICK FACTS Population: 38. which makes it the world’s 95th freest economy. and numerous popular and official obstructions of due process make international courts preferable to Argentine courts.3 billion 9. and agriculture has always been important.ARGENTINA Rank: 95 Regional Rank: 21 of 29 A rgentina’s economy is 57.5% free 100 80 @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ 60 @ @ @ @ @ @ @ @ @ @ @@ 40 Americas Average = 62.org/index. expensive.4% FDI (net inflow): $3.3 World Average = 60.4 million GDP (PPP): $510. State ownership of businesses is also comparatively insignificant. Its overall score is 0.1% 5-yr. How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. and monetary freedom.6% Inflation (CPI): 4. comp.5 percent free.9 billion Official Development Assistance: Multilateral: $27 million Bilateral: $94 million (2% from the U. who became president in May 2003 following the fifth presidential election since Argentina’s return to democracy in 1983. as Argentina levies corporate and top income tax rates of 35 percent. ann. and its overall score is slightly below the regional average. plastics 83 . BACKGROUND: Under Néstor Kirchner. Top tax levels are comparable to those of the United States. cereals. and freedom from corruption are all problems for Argentina (labor freedom less so than the others). growth $13. the state’s role in the economy has expanded. chemicals. labor freedom. corruption is also a problem. and a further hindrance to economic flexibility. government tax revenue as a percentage of GDP is low. Argentina scores high in fiscal freedom. High GDP growth in the past few years is largely attributable to high commodity prices. Argentina has abundant natural resources.S. fuels and energy. petrochemicals. Political interference with an inefficient judiciary hinders greater foreign investment. While this is relatively high.2 billion Primarily machinery and equipment. a debt moratorium.

mandatory holidays. quotas. and all financial services are subject to government regulation and supervision.ARGENTINA’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 65. Argentina ranks 97th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. Consequently. mandatory contributions to a union-run health plan. The customs process is burdensome and weakened by corruption. and property rights. FREEDOM FROM GOVERNMENT — 89. pension payments. LABOR FREEDOM — 56. Both obtaining a business license and closing a business can be difficult because of regulations.6 71.3% Argentina has high tax rates. A number of foreign banks operate in Argentina. The overall freedom to start. PROPERTY RIGHTS — 30% The executive branch influences Argentina’s judiciary. and corrupt.4 82. although market capitalization is dominated by a few firms. = world average FINANCIAL FREEDOM — 40% Argentina’s financial system was devastated by the 2001– 2002 debt default and banking crisis. The non-salary cost of employing a worker is very high. compared to the world average of 48 days. and is restricted in media and Internet companies. inefficient. Several non-tariff barriers are designed to constrain trade and protect domestic industries. and repatriation is subject to some controls. The government has not fully compensated banks for the conversion of dollar-denominated instruments to pesos. The largest bank is state-owned and serves as the sole financial institution in parts of the country. including shipbuilding. overall tax revenue as a percentage of GDP was 14. The sector is recovering and in some cases has returned to pre-crisis levels. FISCAL FREEDOM — 82. restrictive sanitary rules. but Argentines still hesitate to deposit funds in local banks. water. averaging 8.8 percent of its revenues from state-owned enterprises and government ownership of property. Relatively high and unstable prices explain most of the monetary freedom score. government spending equaled 20. BUSINESS FREEDOM — 65. MONETARY FREEDOM — 71. including consumption and transfer payments. Many foreign investors resort to international arbitration. The stock market is active. border-area real estate.5% Starting a business takes an average of 32 days. In the most recent year. 100 L L L L L L L L L L 50 100 = most free. Argentine courts are notoriously slow.3 percent in 2004. including minimum import prices. along with urban transport and local telephone services. fishing. and the government received 0.9 percent of GDP. Non-performing bank loans are down.3 89. and dismissing a redundant employee is costly. Foreign investment is prohibited in a few sectors. and independent surveys indicate that public confidence remains weak. An important violation of property rights is the “piquete. The flow of capital is restricted.4% Argentina’s weighted average tariff rate was 9.7 percent between 2003 and 2005. FREEDOM FROM CORRUPTION — 28% Corruption is perceived as widespread. 84 2007 Index of Economic Freedom . operate. and nuclear power generation. Other taxes include a value-added tax (VAT) and a wealth tax. The government role in the financial sector increased after the crisis.3 50 40 30 28 56. and issues involving the enforcement and protection of intellectual property rights. and most local companies may be wholly owned by foreign investors.3% Inflation is relatively volatile. and overtime. Consequently. Entrepreneurship should be easier for maximum job creation. Businesses still face difficulties involving inconsistent application of regulations. and close a business is relatively well protected by the national regulatory environment. secretive. Barriers to creating more jobs include severance costs. The most significant deterrent is legal uncertainty concerning creditor.6% Total government expenditures.6% The labor market operates under restrictive employment regulations that hinder employment and productivity growth. import controls.6 0 INVESTMENT FREEDOM — 50% Registering a foreign business is fairly simple. are low.2 percent. and gas distribution at the retail level. In the most recent year.” a form of protest in which protestors take over private business. Argentina’s labor market flexibility is one of the 20 lowest in the world. The government imposes price controls on electricity. contract. causing extensive losses with no effective punishment by the police or the government. TRADE FREEDOM — 61. an additional 10 percent is deducted from Argentina’s monetary freedom score to adjust for distortionary price controls. Both the top income tax rate and the top corporate tax rate are 35 percent. an additional 20 percent is deducted from Argentina’s trade freedom score to account for non-tariff barriers.5 61.

Armenia.1% FDI (net inflow): $233 million Official Development Assistance: Multilateral: $146 million Bilateral: $136 million (55% from the U.101 per capita Unemployment: 9. growth $4. The judiciary is fairly weak and subject to political interference. and labor freedom. such as fiscal freedom.) External Debt: $1.org/index. a former Soviet republic. financial freedom. Armenia shows an impressive amount of freedom. 85 . former president of the self-proclaimed Nagorno–Karabakh Republic.1 percentage points. food. and its banking sector is both wholly private and well regulated. occupying Azerbaijan’s Nagorno–Karabakh region and adjacent lands. monetary freedom. Armenia rates highly in many areas. Armenia has low inflation. according to our 2007 assessment. The overall score dropped sharply during the year by 5.S. the government has managed to achieve macroeconomic stabilization in recent years and maintains a positive relationship with various international financial institutions.4% free 100 80 @ @ @ @ @ @@ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @@ @ @ @ @@ @ 60 40 @ @ Europe Average = 67. food How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage.1% growth in 2004 10. Armenia’s score puts it above Europe’s average—an impressive feat for an impoverished landlocked country. The economy is 69. presides over a coalition government that is rife with fundamental policy differences.4 billion 10. business freedom.4 percent free. Despite these differences. including its famous cognac production. ann. BACKGROUND: Since 1988.5% Inflation (CPI): 8. President Robert Kocharyan.6 20 0 1995 2007 QUICK FACTS Population: 3 million GDP (PPP): $12. except for land ownership. Armenia’s economy relies in nearly equal measure on manufacturing. Armenia is ranked 19th freest among the 41 countries in the European region. services. For a post-Soviet country. comp. Commercial regulations are flexible and relatively simple. energy Imports: $1.5 World Average = 60. has sparred with neighboring Azerbaijan.9 million Primarily diamonds.ARMENIA Rank: 32 Regional Rank: 19 of 41 A rmenia’s economy is 69. freedom from government. however. There are few restrictions on foreign investment. Armenia could still make some improvement in property rights and freedom from corruption. which makes it the world’s 32nd freest economy. mineral products. low government expenditure. petroleum.5% 5-yr. tobacco products. however. and low revenue from state-owned businesses contribute to its impressive fiscal and government freedom rankings. and agriculture.5 billion Primarily natural gas. which partially reflects new methodological detail. Low tax rates.2 billion Exports: $984.

and the government received 3. and close a business is relatively well protected by the national regulatory environment. L L L L L 50 L L L L L 100 100 = most free. In the most recent year. Entrepreneurship should be easier for maximum job creation. banks remain hindered by difficulty in debt recovery. substantially impeding the enforcement of contracts. All financial institutions are overseen by the central bank. Consequently.9% The labor market operates under flexible employment regulations that could be improved to enhance employment and productivity growth. Relatively low and stable prices explain most of the monetary freedom score. MONETARY FREEDOM — 79. Obtaining a business license can be relatively simple.ARMENIA’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 84. an additional 20 percent is deducted from Armenia’s trade freedom score. TRADE FREEDOM — 75. averaging 2. Armenia ranks 88th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. including adopting International Accounting Standards and minimum capital requirements. In the most recent year. and telecommunications. The state no longer has a stake in any bank. and all 21 commercial banks are privately owned.9 0 INVESTMENT FREEDOM — 60% Officially. Improper implementation of the customs code is a significant barrier to trade. especially for importers. government spending equaled 17. many banks have closed or merged.6 percent between 2003 and 2005. are low. the business environment can be risky because of the poor implementation and application of business legislation. foreign investors have the same right to establish businesses as native Armenians in nearly all sectors of the economy. 86 2007 Index of Economic Freedom . Corruption is perceived as widespread. Armenia’s underdeveloped financial sector is dominated by banking. The overall freedom to start. The International Monetary Fund reports that there are no restrictions or controls on the holding of foreign exchange accounts.5 percent of GDP. = world average FINANCIAL FREEDOM — 70% BUSINESS FREEDOM — 84. Under the revised rules and standards. A special Economic Court hears commercial disputes.6 93.1 91. the government embarked on a process of bank privatization and regulatory reform.5% Starting a business takes an average of 24 days. The active stock exchange includes 190 listed companies. electricity. an additional 10 percent is deducted from Armenia’s monetary freedom score to adjust for price control measures. the number of banks fell from 31 in 2001 to 21 in March 2005. The Ministry of Finance and Economy regulates the small insurance industry.7% Inflation in Armenia is relatively low. Both the top income tax rate and the top corporate tax rate are 20 percent. PROPERTY RIGHTS — 30% The judiciary is influenced by the executive and is also underdeveloped and corrupt. such as public transportation. compared to the world average of 48 days.7 60 70 30 29 80. The major impediments to foreign investors are weak implementation of business legislation and corruption in the bureaucracy. However. LABOR FREEDOM — 80.2 percent. Government policies distort prices through direct price controls in some sectors. operate. Consequently.6 79. Following a banking crisis in the 1990s. but it remains to be seen how this translates into practice.7 percent of its revenues from state-owned enterprises and government ownership of property. FISCAL FREEDOM — 93. gas. In November 2005.1% Armenia has low tax rates. overall tax revenue as a percentage of GDP was 15. and dismissing a redundant employee is relatively costless. Foreign insurance companies and banks are permitted.3 percent. Non-residents may not own land but are permitted to lease it. However. Other taxes include a value-added tax (VAT) and a vehicle tax.6% Total government expenditures in Armenia. The non-salary cost of employing a worker is moderate.6% Armenia’s weighted average tariff rate in 2001 was a relatively low 2. including consumption and transfer payments. invisible transactions. FREEDOM FROM CORRUPTION — 29% FREEDOM FROM GOVERNMENT — 91. or current transfers and no repatriation requirements.5 75. and closing a business is easy. the constitution was amended to increase judicial independence.

AUSTRALIA
Rank: 3 Regional Rank: 3 of 30

A

ustralia’s economy is 82.7 percent free, according to our 2007 assessment, which makes it the world’s 3rd freest economy. Its overall score is 1.2 percentage points higher than last year, partially reflecting new methodological detail. Australia is ranked 3rd out of 30 countries in the Asia–Pacific region, and its overall score is well above the regional average. Australia rates highly in virtually all areas but is most impressive in financial freedom, property rights, business freedom, labor freedom, and freedom from corruption. Low inflation and low tariff rates buttress a globally competitive financial system based on market principles. As befits a Western democracy, a strong rule of law protects property rights and tolerates virtually no corruption. Foreign investment in Australia receives equal treatment with national investment, and both foreign and domestically owned businesses enjoy considerable flexibility in licensing, regulation, and employment practices. The top income tax rate in Australia is high, as is government spending, but the overall effect is eclipsed by the impressive amount of economic freedom offered generally. Australia’s economy is a global competitor and a regional leader in economic freedom. BACKGROUND: In the 1980s, Australia deregulated its labor markets and reduced its trade barriers, transforming itself into an internationally competitive producer of services, technologies, and high-value-added manufactured goods. John Howard, the country’s second longest-serving prime minister, has stepped up the privatization of state enterprises, including telecommunications. The government’s policy agenda has been dominated in recent years by reforms of the taxation, welfare, public health, and higher education systems.

The economy is 82.7% free
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@

@

@

@

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Asia Average = 59.1 World Average = 60.6

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QUICK FACTS
Population: 20.1 million GDP (PPP): $610.0 billion 3.6% growth in 2004 3.3% 5-yr. comp. ann. growth $30,331 per capita Unemployment: 5.5% Inflation (CPI): 2.3% FDI (net inflow): $26.3 billion Official Development Assistance: Multilateral: None Bilateral: None External Debt: $287.8 billion Exports: $112.5 billion Primarily coal, gold, meat, wool, aluminum, iron ore, wheat, machinery Imports: $131.4 billion Primarily machinery, computers and office machines, telecommunications equipment, crude oil

How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage.org/index.

87

AUSTRALIA’S TEN ECONOMIC FREEDOMS
Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 91.7 73.8 75.4 70.1 84.8 70 90 90 88 93.1
0

INVESTMENT FREEDOM — 70%
Foreign investors receive national treatment. Proposals to start new businesses with an investment of A$10 million must receive prior authorization. The government accepts most of these proposals routinely, although it may reject them if the investment is determined not to be consistent with the “national interest.” Foreign investment in media, banking, airlines, airports, shipping, urban and residential real estate, and telecommunications is subject to limitations. Residents and non-residents have access to foreign exchange and may conduct international payments and capital transactions. There are no capital repatriation controls.
L L L

L L
50

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100

100 = most free,

= world average

BUSINESS FREEDOM — 91.7%
Starting a business takes an average of two days, compared to the world average of 48 days. Ease of entrepreneurship promotes maximum job creation. Obtaining a business license is easy, and closing a business is very easy. In sectors dominated by small businesses, the government generally follows a hands-off approach. The overall freedom to start, operate, and close a business is strongly protected by the national regulatory environment.

FINANCIAL FREEDOM — 90%
Australia’s highly developed, competitive financial system includes advanced banking, insurance, and equity industries. The central bank has the authority to set lending policies and interest rates but has not exercised those powers since the deregulation of financial markets in the 1980s. Markets set interest rates. Government regulation of banks is minimal, and foreign banks may be licensed as branches or subsidiaries and may offer a full range of banking operations. Australia had 53 financial institutions holding banking licenses in 2005, including 14 Australian banks, 11 foreign subsidiaries, and 28 foreign bank branches, and numerous other non-bank financial institutions. There are no government-owned banks. Foreign insurance companies are permitted, and regulation of the sector is undemanding, focusing on capital adequacy, solvency, and prudential behavior. Australia’s stock market is well developed and open to foreign listings.

TRADE FREEDOM — 73.8%
Australia’s weighted average tariff rate in 2004 was a relatively low 3.1 percent. However, the government implements a number of non-tariff barriers that impede and raise the cost of trade. These include stringent sanitary measures, support programs for agriculture and manufacturing products, and commodity boards. Consequently, an additional 20 percent is deducted from Australia’s trade freedom score.

FISCAL FREEDOM — 75.4%
Australia has a high income tax rate and a moderate corporate tax rate. The top income tax rate is 47 percent, and the top corporate tax rate is 30 percent. Other taxes include a value-added tax (VAT), a tax on insurance contracts, and a fuel tax. In the most recent year, overall tax revenue as a percentage of GDP was 24.1 percent.

PROPERTY RIGHTS — 90%
Property rights are well protected. Contracts are secure, although subject to backlogs. Government expropriation is highly unusual.

FREEDOM FROM CORRUPTION — 88%
Corruption is perceived as minimal. Australia ranks 9th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005.

FREEDOM FROM GOVERNMENT — 70.1%
Total government expenditures in Australia, including consumption and transfer payments, are high. In the most recent year, government spending equaled 35.3 percent of GDP, and the government received 2.3 percent of its total revenues from state-owned enterprises and government ownership of property.

LABOR FREEDOM — 93.1%
The labor market operates under highly flexible employment regulations that enhance employment and productivity growth. The non-salary cost of employing a worker can be high, but dismissing a redundant employee is costless. Australia’s labor market flexibility is one of the 20 highest in the world.

MONETARY FREEDOM — 84.8%
Inflation is relatively low, averaging 2.6 percent between 2003 and 2005. Relatively low and stable prices explain most of the monetary freedom score. The government does not impose national price controls on goods, but states retain the power to impose price controls (although the range of goods actually subject to control is diminishing as competition reforms are implemented). Consequently, an additional 5 percent is deducted from Australia’s monetary freedom score.

88

2007 Index of Economic Freedom

AUSTRIA
Rank: 25 Regional Rank: 15 of 41

A

ustria’s economy is 71.3 percent free, according to our 2007 assessment, which makes it the world’s 25th freest economy. Austria is ranked 15th freest among the 41 countries in the European region, putting it well above the regional average. Austria’s score declined by 0.1 percentage point this year, but it has been high since the inception of the Index, never deviating more than 5 points in either direction. Austria rates well in trade, monetary, and business freedom, as well as property rights and freedom from corruption. As a member of the European Union, its tariff is standardized at the low 1.7 percent rate, property rights are strong, and inflation is relatively stable for the euro currency. Starting a business takes a relatively short time. Foreigners wishing to invest in Austria are not subject to particularly stringent requirements. As a modern European social democracy, Austria maintains very high personal income tax rates to support a significant welfare state. Extensive commercial regulations have been reduced slightly, although rigid labor laws remain. Hiring and firing employees is difficult, as is true almost everywhere else in the EU, and inflexibility of the labor market hurts overall competitiveness. BACKGROUND: Over the past decade, Austria’s government has relinquished control of formerly nationalized oil, gas, steel, and engineering companies and has deregulated telecommunications and electricity; yet foreign investors still face regulatory rigidities and barriers to market entry. Parliamentary elections led to reconfiguration of the fragile governing coalition in February 2003, and People’s Party Chancellor Wolfgang Schüssel has accelerated the pace of market reform. A major tax reform initiative simplifying both wage and income taxes was enacted in May 2004. Corporate tax rates were reduced by nearly a third to 25 percent, giving Austria one of the lowest rates in Western Europe.

The economy is 71.3% free
100

80
@ @ @ @ @@ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @

60

40
Europe Average = 67.5 World Average = 60.6

20

0

1995

2007

QUICK FACTS
Population: 8.2 million GDP (PPP): $263.8 billion 2.4% growth in 2004 1.8% 5-yr. comp. ann. growth $32,276 per capita Unemployment: 7.1% Inflation (CPI): 2.1% FDI (net inflow): –$2.3 billion Official Development Assistance: Multilateral: None Bilateral: None External Debt: $510.6 billion (2005 estimate) Exports: $161.1 billion Primarily machinery and equipment, motor vehicles and parts, paper and paperboard, metal goods, chemicals, iron and steel Imports: $155.3 billion Primarily machinery and equipment, motor vehicles, chemicals, metal goods, oil and oil products, food 89

How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage.org/index.

AUSTRIA’S TEN ECONOMIC FREEDOMS
Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 79.8 76.6 66.9 40.5 85.7 70 70 90 87 46.8
0

INVESTMENT FREEDOM — 70%
There are no formal sectoral or geographic restrictions on foreign investment. Foreign investment is forbidden in arms, explosives, and industries in which the state has a monopoly (casinos, printing of banknotes, and minting of coins). Restrictions exist for non-residents in the auditing and legal professions, transportation, and electric power generation. There are no controls or requirements on current transfers, access to foreign exchange, or repatriation of profits. Real estate transactions are subject to approval by local authorities.
L L L L L

50

L L L L L
100

100 = most free,

= world average

FINANCIAL FREEDOM — 70% BUSINESS FREEDOM — 79.8%
Starting a business takes an average of 29 days, compared to the world average of 48 days. Entrepreneurship should be easier for maximum job creation. Obtaining a business license is relatively simple, and closing a business is easy. In recent years, the government has moved to streamline its complex and time-consuming regulatory environment. The overall freedom to start, operate, and close a business is relatively well protected by the national regulatory environment. Austria’s financial system is subject to limited government intervention. An independent supervisory body established in 2002 oversees retirement funds, insurance, securities, and banking (where oversight is performed by the central bank). Banks offer the full range of services, and the erosion of barriers has been leading to consolidation. Markets set interest rates, and foreign banks operate freely. The largest bank is a unit of Germany’s HypoVereinsbank. In May 2005, the government and several private institutions announced a plan to support Austria’s fourthlargest bank, Bawag PSK, after it almost collapsed from a speculation debacle. Tax incentives have been adopted to promote equity investment through pension funds. The stock exchange was privatized in 1999 and is modest in size, although financing from other European capital markets is readily available.

TRADE FREEDOM — 76.6%
Austria’s trade policy is the same as those of other members of the European Union. The common EU weighted average tariff rate was 1.7 percent in 2005. Non-tariff barriers reflected in EU and Austrian policy include agricultural and manufacturing subsidies, regulatory and licensing restrictions, and other market access restrictions. Consequently, an additional 20 percent is deducted from Austria’s trade freedom score.

PROPERTY RIGHTS — 90%
Private property is very secure in Austria. Contractual agreements are secure, and the protection of private property and intellectual property is well established.

FISCAL FREEDOM — 66.9%
Austria has a very high income tax rate and a low corporate tax rate. The top income tax rate is 50 percent, and the top corporate tax rate is 25 percent. Other taxes include a value-added tax (VAT), an advertising tax, and a tax on insurance contracts. In the most recent year, overall tax revenue as a percentage of GDP remained very high at 42.9 percent.

FREEDOM FROM CORRUPTION — 87%
Corruption is perceived as minimal. Austria ranks 10th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005.

LABOR FREEDOM — 46.8%
The labor market operates under highly restrictive employment regulations that hinder employment and productivity growth. The non-salary cost of employing a worker is high, and dismissing a redundant employee is costly. The cost of fringe benefits per employee (one of the EU’s highest) is equivalent to nearly 100 percent of base salary.

FREEDOM FROM GOVERNMENT — 40.5%
Total government expenditures, including consumption and transfer payments, are very high. In 2004, government spending equaled 50.1 percent of GDP, and the government received 2.7 percent of its total revenues from state-owned enterprises and government ownership of property.

MONETARY FREEDOM — 85.7%
Austria is a member of the euro zone. From 2003 to 2005, its weighted average annual rate of inflation was 2.2 percent. Relatively low and stable prices explain most of the monetary freedom score. As a participant in the EU’s Common Agricultural Policy, the government subsidizes agricultural production, distorting the prices of agricultural products. Consequently, an additional 5 percent is deducted from Austria’s monetary freedom score to account for these policies.

90

2007 Index of Economic Freedom

AZERBAIJAN
Rank: 107 Regional Rank: 20 of 30

A

zerbaijan’s economy is 55.4 percent free, according to our 2007 assessment, which makes it the world’s 107th freest economy. Its overall score is 1.4 percentage points higher than last year, partially reflecting new methodological detail. Azerbaijan is ranked 20th out of 30 countries in the Asia–Pacific region, and its overall score is just below the regional average. Azerbaijan’s level of monetary freedom is fairly high. Corporate tax rates enhance Azerbaijan’s score, although the government also imposes other taxes. Most of the stateowned businesses have been privatized. That and limited government spending give Azerbaijan a high freedom from government score. As a transforming Second World economy, Azerbaijan still faces substantial challenges. Financial freedom, investment freedom, property rights, and corruption remain problematic, and an underdeveloped judicial system engenders a debilitating lack of property rights. Major hurdles, both formal and informal, stand in the way of foreign investment, and wide sectors of the economy are off-limits to non-Azerbaijanis. BACKGROUND: Azerbaijan regained its independence from the Soviet Union in 1991, but a long-running dispute with Armenia over the Nagorno–Karabakh region has cost Azerbaijan 16 percent of its territory. President Ilham Aliyev is placing loyalists in positions of power with a view to contesting the 2008 election. Large inflows of foreign direct investment continue to support the hydrocarbons sector. Surging exports of oil and gas are expected to raise GDP significantly in the years ahead.

The economy is 55.4% free
100

80
@ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @

60
@ @

@@

@@ @@

@ @

@@ @

@ @

@ @

@

@

40
@ @

@

Asia Average = 59.1 World Average = 60.6

20

0

1995

2007

QUICK FACTS
Population: 8.3 million GDP (PPP): $34.5 billion 10.2% growth in 2004 8.3% 5-yr. comp. ann. growth $4,153 per capita Unemployment: 1.1% Inflation (CPI): 6.7% FDI (net inflow): $3.4 billion Official Development Assistance: Multilateral: $81 million Bilateral: $122 million (39% from the U.S.) External Debt: $2.0 billion Exports: $4.2 billion Primarily oil and petroleum, machinery, cotton, food Imports: $6.3 billion Primarily machinery and equipment, oil products, food, metals, chemicals

How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage.org/index.

91

AZERBAIJAN’S TEN ECONOMIC FREEDOMS
Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 58 67.6 87.2 86.6 76.8 30 30 30 22 65.4
0

INVESTMENT FREEDOM — 30%
Even though the government has issued some decrees to improve the business environment, the Ministry of Justice serves as a screening process, acting in a non-transparent, arbitrary manner. The government prohibits investments in national security and defense sectors and restricts investment in government-controlled sectors like energy, mobile telephony, and oil and gas. The Azerbaijan National Bank regulates most foreign exchange transactions and foreign exchange accounts. Payments and transfers are subject to restrictions, and the central bank must authorize most capital transactions. Direct investment abroad by residents, including real estate transactions, requires central bank approval.
L L L

L L
50

L L L L L
100

100 = most free,

= world average

BUSINESS FREEDOM — 58%
Starting a business takes an average of 53 days, compared to the world average of 48 days. Entrepreneurship should be easier for maximum job creation. Obtaining a business license can be very difficult, but closing a business is relatively easy. The lack of transparent and effective regulations to establish clear rules and foster competition are serious impediments to investment. The overall freedom to start, operate, and close a business is limited by the national regulatory environment.

FINANCIAL FREEDOM — 30%
Azerbaijan’s financial system is underdeveloped and largely cash-based. The banking sector is weak and burdened by non-performing loans. The central bank has overseen a process of closures, consolidation, and privatization under which the number of banks has fallen from 210 in 1994 to 44 in 2006. The two state-owned banks together account for about 60 percent of banking sector assets and provide financing for most government departments and many of the state-owned enterprises, often at below-market rates. The central bank raised minimum capital requirements, but many commercial banks are undercapitalized. Foreign banks have a minimal presence. The government has imposed increased regulatory requirements and supervision on the insurance sector, which consisted of about 60 companies in 2005, including two state companies and eight foreign companies. The stock exchange is very small.

TRADE FREEDOM — 67.6%
Azerbaijan’s weighted average tariff rate was a relatively moderate 6.2 percent in 2002. Non-tariff barriers include a weak legal regime, arbitrary customs administration, conflicts of interest in regulatory matters, subsidies, and corruption. Consequently, an additional 20 percent is deducted from the trade freedom score.

FISCAL FREEDOM — 87.2%
Azerbaijan has a moderate income tax rate and a low corporate tax rate. The top income tax rate is 35 percent, and the top corporate tax rate is 22 percent (effective January 2006). Other taxes include a value-added tax (VAT) and a property tax. In the most recent year, overall tax revenue as a percentage of GDP was 14.4 percent.

PROPERTY RIGHTS — 30%
The judiciary is the least developed branch of the government and suffers from corruption. Problems in the quality, reliability, and transparency of governance, as well as abuse of the regulatory system and poor contract enforcement, significantly impede the ability of many companies to do business. Politically connected business interests benefit from their control of lucrative sectors of the economy.

FREEDOM FROM GOVERNMENT — 86.6%
Total government spending, including consumption and transfer payments, is low. In the most recent year, government spending equaled 17.9 percent of GDP, and the government received 17.7 percent of its total revenues from state-owned enterprises and government ownership of property. Structural reform has been very slow in many sectors. Privatization of small and medium-sized enterprises is almost complete, but only limited progress has been made in large-scale enterprises.

FREEDOM FROM CORRUPTION — 22%
Corruption is perceived as widespread. Azerbaijan ranks 137th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005.

LABOR FREEDOM — 65.4%
The labor market operates under restrictive employment regulations that hinder employment and productivity growth. The non-salary cost of employing a worker is high, and dismissing a redundant employee is costly. Azerbaijan’s unemployment insurance program pays out the equivalent of 70 percent of the average national salary, which is so generous that it diminishes the incentive to work.

MONETARY FREEDOM — 76.8%
Inflation averaged 8.3 percent between 2003 and 2005. Relatively moderate and unstable prices explain most of the monetary freedom score. The government continues to impose artificially low prices on most energy products. Consequently, an additional 5 percent is deducted from Azerbaijan’s monetary freedom score to adjust for distortionary price control measures.

92

2007 Index of Economic Freedom

THE BAHAMAS
Rank: 24 Regional Rank: 5 of 29

T

he Bahamian economy is 71.4 percent free, according to our 2007 assessment, which makes it the world’s 24th freest economy. Its overall score is 1.2 percentage points lower than last year, partially reflecting new methodological detail. The Bahamas is ranked 5th out of 29 countries in the Americas, and its overall score is higher than the regional average. The Bahamas enjoys high levels of business freedom, freedom from government, monetary freedom, fiscal freedom, property rights, and labor freedom. The government imposes no income or corporate tax. Regulations can be subject to official whim, but the environment remains generally business-friendly. The labor market is highly flexible, and severance packages are not overly onerous for employers. A focus on transparency represents the best traditions of English common law in protecting private property, which is nowhere more apparent than in the advanced financial system. Despite a healthy respect for law and a relatively positive economic environment, the Bahamas levies significant tariffs on a wide array of trade goods, and non-tariff barriers further impede trade. Foreign investment is restricted and subject to numerous approvals by the civil service. BACKGROUND: The Bahamas was settled by the British and became independent in 1973. Tourism employs about half of the working population, either directly or indirectly. Banking and international financial services also contribute heavily to the economy, which is the most prosperous in the Caribbean. The government is funded in part by high import tariffs that serve as a mercantilist barrier to higher prosperity as well as closer trade integration with island neighbors and the United States. The economy experiences periodic waves of Haitian and Cuban immigrants and is unable to stop the drug trafficking through the country’s numerous cays and small islands.

The economy is 71.4% free
100

80
@ @

@ @

@ @ @ @ @ @ @ @

@

@ @

@ @

@ @ @ @ @ @ @ @

@ @@

60
@ @

@ @ @

@

@ @ @ @

@

40
Americas Average = 62.3 World Average = 60.6

20

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2007

QUICK FACTS
Population: 0.3 million GDP (PPP): $6.98 billion (2005 estimate) 3.0% growth in 2004 1.8% 5-yr.comp. ann. growth $20,200 per capita (2005 estimate) Unemployment: 10.2% Inflation (CPI): 0.5% FDI (net inflow): $211.9 million Official Development Assistance: Multilateral: $2 million Bilateral: $6 million (100% from the U.S.) External Debt: $342.6 million (2004 estimate) Exports: $2.7 billion Primarily mineral products and salt, animal products, rum, chemicals Imports: $3.0 billion Primarily machinery and transport equipment, manufactures, chemicals, mineral fuels, food and live animals

How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage.org/index.

93

THE BAHAMAS’ TEN ECONOMIC FREEDOMS
Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 80 28.8 98.3 89.9 77.3 40 70 80 70 80
0

INVESTMENT FREEDOM — 40%
Foreign investment is restricted in many sectors, including wholesale and retail operations, real estate, newspapers, advertising, nightclubs and some restaurants, security services, building supplies, construction, fishing, and public transportation. All outward capital transfers and inward transfers by non-residents require exchange control approval. Foreign direct investment must be approved by the central bank. To purchase real estate for commercial purposes or to purchase more than five acres, foreigners must obtain a permit from the Investments Board.
L

L L L L L L L L L
50 100

100 = most free,

= world average

FINANCIAL FREEDOM — 70% BUSINESS FREEDOM — 80%
The Bahamian government generally follows a hands-off approach to business. However, starting, operating, and closing a business can be hindered by a burdensome regulatory environment. The Bahamian financial sector is an international financial hub and is open to foreigners. Yielding to international pressure, such as the listing in June 2000 by the Financial Action Task Force, the government passed regulations on international business companies, mutual funds, money laundering, and trusts in the 1990s and established a Financial Intelligence Unit, improved international legal cooperation, and tightened rules on reporting of suspicious transactions in 2000. The Bahamas was removed from the FATF list in 2001. These changes impose extra regulatory costs on the financial sector but do not constrain financial services, although stricter regulation and supervision did result in fewer licensed banks and companies. The government has adopted incentives to encourage foreign financial business and remains involved in the financial sector through ownership of the Bahamas Mortgage Corporation and the Bahamas Development Bank. The stock market is underdeveloped and small.

TRADE FREEDOM — 28.8%
According to the World Bank, The Bahamas’ weighted average tariff rate was a high 25.6 percent in 2002. The government imposes occasional import bans and implements import licensing procedures. The government imposes a 7 percent “stamp tax” on most imports, and higher stamp taxes are charged on some duty-free goods, including china, crystal, wristwatches, clocks, jewelry, table linens, leather goods, perfume, wine, and liquor. The government also uses import permits to restrict imports of some agricultural goods. Consequently, an additional 20 percent is deducted from the Bahamas’ trade freedom score to account for non-tariff barriers.

PROPERTY RIGHTS — 80% FISCAL FREEDOM — 98.3%
The Bahamas’ tax burden is one of the lowest in the world. There is no income tax, no corporate income tax, no capital gains tax, no inheritance tax, and no value-added tax. In the most recent year, overall tax revenue (mainly from import tariffs) as a percentage of GDP was 16 percent. The Bahamas has an efficient legal system based on English common law. The judiciary is independent and conducts generally fair public trials. However, the judicial process tends to be very slow, and some investors complain of malfeasance on the part of court officials.

FREEDOM FROM CORRUPTION — 70% FREEDOM FROM GOVERNMENT — 89.9%
Total government spending, including consumption and transfer payments, is low. In the most recent year, government spending equaled 19.4 percent of GDP, and the government received 3.8 percent of its revenues from stateowned enterprises and government ownership of property. Privatization of state-owned business has been slow and limited. Piracy of software, music, and videos is a problem. Existing copyright laws are ignored. Illegal drug trafficking and money laundering are also significant.

LABOR FREEDOM — 80%
The labor market generally operates under flexible employment regulations that enhance overall productivity growth. Although labor laws can be burdensome, especially for domestic business, their cost is relatively low. Employment contracts are not mandatory but are often prepared. Legal entitlement to notice on termination is not required, but one pay period is the custom.

MONETARY FREEDOM — 77.3%
Inflation is relatively low, averaging 1.5 percent between 2003 and 2005. Relatively stable prices explain most of the monetary freedom score. An additional 15 percent is deducted from the Bahamas’ monetary freedom score to adjust for price control measures that distort domestic prices for such “breadbasket” items as drugs, gasoline, diesel oil, and petroleum gas.

94

2007 Index of Economic Freedom

7 million GDP (PPP): $14. 60 @@ @ @ @@ @ @ @ @ @ @ @ @ @ @ @ 40 Mideast/North Africa Average = 57. textiles Imports: $7. with high scores in several of the 10 factors of economic freedom. chemicals How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. and Bahrain ratified a free trade agreement. aluminum. monetary freedom. partially due to new methodological detail. generating three-quarters of government revenue. machinery.S.1 billion (2004 estimate) Exports: $9. and financial freedom all rate well but are tempered by a score of only 40 percent for labor freedom.1 billion Primarily crude oil.4% growth in 2004 5. growth $20.) External Debt: $6. the economy would do well if state-owned enterprises were not so dominant. according to our 2007 assessment. the country became a constitutional monarchy in 2002. Because of its communications and transportation infrastructure. Despite some high scores. and the government has sought to reduce dependence on declining oil reserves and encourage foreign investment by diversifying the economy.4% free 100 @ @ @ @ @ 80 @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ Bahrain’s economy is very free for the Middle East. overall freedom has declined consistently since 1999. Bahrain is home to many multinational firms that do business in the region. Under a constitution promulgated by Sheikh Hamad bin Isa al-Khalifa. ann. Its overall score is 2. such as tax and banking freedom. which makes it the world’s 39th freest economy.3 million Official Development Assistance: Multilateral: $0. and cosmopolitan outlook. BACKGROUND: Bahrain has become one of the Persian Gulf’s most advanced economies and most progressive political systems since gaining its independence from Great Britain in 1971.9 billion 5.org/index.2 World Average = 60.0% (2004 estimate) Inflation (CPI): 2.6 20 0 1995 2007 QUICK FACTS Population: 0. Business freedom. 95 . B The economy is 68. the U. and its economy is ideal in several respects. Specifically. The main areas in which the country could improve are labor freedom and freedom from government.2 million Bilateral: $111 million (0% from the U. Bahrain is ranked 2nd out of 17 countries in the Middle East/North Africa region. regulatory structure. The complete absence of income or corporate taxes in all industries except oil gives Bahrain a competitive commercial advantage globally.4 percent free.BAHRAIN Rank: 39 Regional Rank: 2 of 17 ahrain’s economy is 68. comp. however.6 percentage points lower than last year.2 billion Primarily petroleum and petroleum products.3% FDI (net inflow): –$170.6% 5-yr. fiscal freedom. based on government regulations mandating the hiring of Bahrainis.S. In 2005.758 per capita Unemployment: 14.

FREEDOM FROM CORRUPTION — 58% Corruption is perceived as present. L L L L L L L L L L BUSINESS FREEDOM — 80% Bahrain’s commercial law system is relatively straightforward. except in cases that involve competition with established local enter- 96 2007 Index of Economic Freedom . but a limited number of products are subject to import and export prohibitions and licenses. no exchange controls. whether associated with an investment or not. Government regulations require businesses. Most companies are not subject to corporate tax. and petroleum. FREEDOM FROM GOVERNMENT — 56.1% Inflation is relatively low. MONETARY FREEDOM — 80.BAHRAIN’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 80 69.1 percent of its revenues from state-owned enterprises and government ownership of property. Bahrain ranks 36th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. whether by Bahraini or foreign firms. An additional 10 percent is deducted from Bahrain’s monetary freedom score to adjust for price control measures that distort domestic prices for electricity. water. In the most recent year. INVESTMENT FREEDOM — 50% The government welcomes foreign investment. FINANCIAL FREEDOM — 90% Bahrain aims to become a regional financial hub. Property is secure. and both foreign and local individuals and companies have access to credit on market terms.7 percent of GDP. The stock exchange is small but active. and foreign firms have been able to resolve disputes satisfactorily through the local courts.6% Bahrain imposes no taxes on personal income. dominate the financial sector. Consequently. and no restrictions on converting or transferring funds. 15 were branches of foreign banks. The stock exchange restricts ownership by non-GCC firms and persons to 49 percent of listed companies.1 50 90 60 58 40 0 50 100 100 = most free.5 percent between 2003 and 2005. and closing a business can be hindered by a regulatory environment that lacks coordination. All significant investments. = world average prises or existing government-owned or parastatal companies. LABOR FREEDOM — 40% The labor market operates under inflexible employment regulations that hinder overall productivity growth. The International Monetary Fund has praised Bahrain’s financial supervision as effective and its regulation as modern and comprehensive. including consumption and transfer payments.6% Bahrain’s simple average tariff rate was 5. There are few non-tariff barriers. particularly at the border. The Arab Banking Corporation and the Gulf International Bank control 45 percent of total offshore banking unit assets. Obtaining a business license is difficult because of complicated bureaucratic procedures.6 56. Of the 25 commercial banks operating in 2006. Bahrain lifted the requirement that foreign insurance brokers and loss adjusters have at least 51 percent Bahraini ownership. In the most recent year. steps to streamline licensing and approval procedures have been taken. are moderate. are subject to a lengthy and complicated government approval process.2 percent in 2005. Bahrain has no restrictions on the repatriation of profits or capital. In recent years. but a 46 percent corporate tax rate is levied on oil companies. They may now operate with 100 percent foreign ownership. and discrepancies between legislation and practice reduce transparency and predictability and may increase the scope for administrative discretion. Some 52 offshore banking units. the legal system is well regarded. operating. but non-GCC nationals are allowed only 49 percent ownership of most companies. Gulf Cooperation Council (GCC) nationals may own 100 percent of the shares of domestic enterprises. and this practice hinders job creation as the government tries to micromanage decisions by private businesses.7 80. Rigid regulations about dismissing a worker are also a burden to the private sector. and the government received 72. PROPERTY RIGHTS — 60% FISCAL FREEDOM — 99. an additional 20 percent is deducted from Bahrain’s trade freedom score to account for non-tariff barriers. Nevertheless. averaging 2.7% Total government expenditures.6 percent. and expropriation is unlikely. In March 2004. by law. but starting. which use Bahrain as a base from which to conduct banking operations in other countries.6 99. because the king has the right to appoint judges and amend the constitution. overall tax revenue as a percentage of GDP was 7. to employ Bahrainis. The judiciary is not fully independent. TRADE FREEDOM — 69. There are no prohibitions on the use of international arbitration to safeguard contracts. government spending equaled 28. Relatively low and stable prices explain most of the monetary freedom score.

Monetary freedom. partially reflecting new methodological detail. However. textiles.1 World Average = 60.5% (2004 estimate) Inflation (CPI): 6. and poor management have hindered the economy. Natural disasters.6 20 0 1995 2007 QUICK FACTS Population: 139.4% 5-yr.1 billion Primarily machinery and equipment. in which the service sector accounts for half of GDP. the current government has achieved some success in tackling environmental issues and the economy. food. however. iron and steel. as does a haphazard and politicized approach to the rule of law. and Bangladesh maintains fairly loose restrictions on starting new businesses and obtaining commercial licenses. Tariffs are prohibitively high.2 million GDP (PPP): $260. It is also weak in investment freedom. Chaotic regulations and restricted market sectors impede greater foreign investment. is not quite as simple.) External Debt: $20.org/index. fish Imports: $13. Its overall score is 6. Bangladesh is ranked 27th out of 30 countries in the Asia–Pacific region. corruption is rampant.6 percentage points lower than last year. cement How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. In addition. 60 @ @ @@ @ @ @@ @@ @ @ @ @ @ @@ @ @ @ @ @ @ @ @ 40 @ Asia Average = 59. Bangladesh has extreme barriers to trade freedom. ann.S.870 per capita Unemployment: 2.3 billion Exports: $9.BANGLADESH Rank: 143 Regional Rank: 27 of 30 angladesh’s economy is 47. and the top income and corporate tax rates are not excessive. The run-up to the establishment of a caretaker government preceding the October 2005 national elections was marked by a dangerous and violent political struggle. 97 .9% growth in 2004 5. Privatization continues to proceed slowly.8% free 100 80 @ @ @ @ @ @ @ @ @ @ @ @ @ Bangladesh’s fiscal freedom and freedom from government score well. inadequate infrastructure. petroleum products. jute and jute goods. labor freedom.8 percent free.4 billion 5. Government expenditures relative to GDP are low.2 billion Primarily garments. Closing a business. B The economy is 47. leather. while the majority of the population is engaged in the agricultural sector. The banking sector is plagued by similar problems. growth $1. according to our 2007 assessment. which makes it the world’s 143rd freest economy. and business freedom are also relatively positive.1% FDI (net inflow): $456. and financial freedom.0 billion Bilateral: $1. BACKGROUND: The People’s Republic of Bangladesh is one of the world’s poorest countries. property rights. chemicals.1 million Official Development Assistance: Multilateral: $1.0 billion (9% from the U. comp.

The government is both owner and major customer of the state-owned banks. and a tax on interest. Obtaining a business license is relatively simple.7% Inflation averaged a moderate 6. PROPERTY RIGHTS — 30% FISCAL FREEDOM — 89. Most capital transactions are controlled or prohibited. The banking system consisted of four nationalized commercial banks. leave policies.5 68. and working hours. and 10 foreign banks in 2005. operate. underdeveloped financial services sector. 100 L L L L L L L L L L 50 FINANCIAL FREEDOM — 20% Bangladesh has a small. The top income tax rate is 25 percent.BANGLADESH’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 64. and the government received 11. but dismissing a redundant employee is costly. The extensive microfinance presence is largely unsupervised. a property tax. are low.4 91.5 percent) than are publicly traded companies (30 percent). unnecessary licenses. There are 49 labor regulations. government spending equaled 14.4% Bangladesh has moderate tax rates. The constitution provides for an independent judiciary. including a foreignowned firm. and petroleum products. 100 = most free. and fraudulent transactions. In the most recent year. restrictive labeling requirements.4 percent of its total revenues from state-owned enterprises and government ownership of property. this is the key area that needs improvement. FREEDOM FROM CORRUPTION — 17% Corruption is perceived as widespread. Bureaucratic procedures. Contracts are weakly enforced.3% Starting a business takes an average of 37 days. Corruption serves as a non-tariff barrier. Bangladesh ranks last in Transparency International’s Corruption Perceptions Index for 2005.3 0 89. Entrepreneurship should be easier for maximum job creation. Commercial regulations can be unclear and inconsistent.2 percent of GDP. and the lack of transparency raises start-up and operational costs. Privatization has been hindered by bureaucratic resistance and opposition from labor unions. five state-owned specialized banks. but the major portion of insurance activity is controlled by two state-owned companies. The nationalized commercial banks dominate the system.6 percent between 2003 and 2005. insurance companies. The central bank is not independent. although the lower courts are considered to be part of the executive branch.8 percent in 2005. TRADE FREEDOM — 0% Bangladesh’s weighted average tariff rate was 55. 30 private domestic banks. Non-resident companies are subject to a higher corporate tax rate (37. and ineffectively operated customs procedures. Dispute settlement is also hampered by shortcomings in accounting practices and the registration of real property. 98 2007 Index of Economic Freedom . = world average BUSINESS FREEDOM — 64. and political influence over lending are common. An additional 15 percent is deducted from Bangladesh’s monetary freedom score to adjust for price control measures that distort domestic prices for goods produced in state-owned enterprises. The labor laws specify wage levels. Capital markets are small and underdeveloped. Foreign banks are generally restricted to offshore and foreign trade business. an additional 20 percent is deducted from Bangladesh’s trade freedom score to account for non-tariff barriers. mismanagement. and the government has taken initiatives to amend and codify 27 of them as a single version of the labor laws. FREEDOM FROM GOVERNMENT — 91. Banks.5% Total government expenditures. The lower courts suffer from corruption. and uncertainty about contract and regulatory enforcement constitute strong barriers to foreign investment. and close a business is relatively well protected by the national regulatory environment. Financial supervision is weak. controlling over half of banking assets. In the most recent year. and financial institutions are taxed at a higher rate (45 percent) than are other corporations (30 percent). The non-salary cost of employing a worker is low. Consequently. Non-performing loans are declining but still represented 18 percent of all loans in 2004.7 30 20 30 17 67 0 INVESTMENT FREEDOM — 30% Foreign investment is generally welcomed. The overall freedom to start.9 percent. corruption. but closing a business is difficult. Given that corruption is cancerous to all other economic freedoms. There are 30 private insurance companies. and the top corporate tax rate is 30 percent. compared to the world average of 48 days. Relatively moderate and unstable prices explain most of the monetary freedom score. MONETARY FREEDOM — 68. some pharmaceuticals. Barriers to trade include prohibitions and restrictions on imports. but utilities and other critical sectors are not open to the private sector. Other taxes include a value-added tax (VAT). LABOR FREEDOM — 67% The labor market operates under restrictive employment regulations that hinder employment and productivity growth. including consumption and transfer payments. overall tax revenue as a percentage of GDP was 7.

5 billion Primarily sugar and molasses. comp. are simple and not cumbersome.3 World Average = 60.8 billion Primarily consumer goods. rum. Barbados emphasizes economic and cultural cooperation within the Caribbean region and the development of a common trade policy position within the Caribbean Community and Common Market (CARICOM) trade bloc. 60 40 Americas Average = 62. ann. growth $16. Barbados does levy significant tariffs on non-CARICOM goods. as do financial and monetary freedoms. and labor freedom all rate highly. beverages. clearly laid out in commercial laws and generally followed. fuel. food. chemicals. How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. chemicals. as well as a relatively low level of corruption and the protection of private property. machinery. led by Owen Arthur. although to a lesser extent. although diminishing in importance. food. Despite a healthy respect for law and a relatively positive economic environment. Business regulations. construction materials. The labor market is highly flexible and open. B The economy is 70.) External Debt: $643. Its overall score is 4.825 per capita Unemployment: 9. remains an important employer and exporter. though certain restrictions on foreign investment and moderately high taxes exist. and non-tariff barriers are a hindrance to a more efficient flow of goods. partially reflecting new methodological detail.S. A focus on transparency levels the playing field for domestic and foreign businesses alike. BACKGROUND: Barbados has a two-party parliamentary system. electrical components 99 .8% growth in 2004 1.org/index. and the Barbados Labor Party. electrical components Imports: $1.6 20 0 1995 2007 QUICK FACTS Population: 0.4% 5-yr. The heavily subsidized sugar industry. A strong legal system allows for the effective adjudication of business disputes.5 percent free.6 billion 4. which makes it the world’s 28th freest economy. The offshore financial sector is smaller than others in the Caribbean but makes a significant contribution to the economy and is generally well regulated. according to our 2007 assessment.7 percentage points lower than last year.BARBADOS Rank: 28 Regional Rank: 6 of 29 arbados’s economy is 70. Average tariff rates are similarly high. Tourism is the most important economic sector.5% free 100 80 @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @@ Barbados’s business freedom. has been in power since 1994. and its overall score is well above the regional average. property rights.6% Inflation (CPI): 1.4% FDI (net inflow): $50 million (gross) Official Development Assistance: Multilateral: $33 million Bilateral: $3 million (36% from the U.3 million GDP (PPP): $4.5 million Exports: $1. Barbados is ranked 6th out of 29 countries in the Americas.

In recent years. The securities exchange is small. employers have no legal obligation to recognize unions. but the government is more likely to approve projects that it believes will create jobs and increase exports. Transparent policies and effective laws enhance competition and establish clear rules for foreign and domestic investors. The legal tradition is based on British common law.1 percent of GDP. British.500 international business companies.1 percent of its total revenues from state-owned enterprises and government ownership of property. TRADE FREEDOM — 47% The simple average tariff rate in Barbados was 16. the largest local insurance company.5 percent between 2003 and 2005. Barbados ranks 24th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. FISCAL FREEDOM — 78. including Canadian.5 50 60 90 69 80 0 investors can be subject to performance requirements.5% Inflation is moderate.3 64. exempt insurance companies. The Company Act ensures flexibility and simplicity for establishing and operating companies in Barbados. and the government received 5.3% Barbados has a high income tax rate and a moderate corporate tax rate.5 percent. Domestic financing is generally restricted to Barbadians or permanent residents.4 76. restrict the volumes of funds. and the top corporate income tax rate is 30 percent. FREEDOM FROM GOVERNMENT — 64.5 percent in 2003. Commercial banking is dominated by foreign banks. licenses. averaging 4. and the government operates in an essentially transparent manner. government spending equaled 38. By Caribbean standards. LABOR FREEDOM — 80% The labor market generally operates under flexible employment regulations that enhance overall productivity growth. and the central bank must approve all credit operations.BARBADOS’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 90 47 78. The highest court of appeal is the new Caribbean Court of Justice. INVESTMENT FREEDOM — 50% Barbados permits 100 percent foreign ownership of enterprises and treats domestic and foreign firms equally. = world average BUSINESS FREEDOM — 90% Starting. In the most recent year. Exchange control approval is required for direct investment and real estate purchases. Under the Trade Union Act of 1964. FREEDOM FROM CORRUPTION — 69% Corruption is perceived as present. As of 2004. The government requires permits. Sagicor.4% Total government expenditures. Legislation passed in 1998 tightened the controls against money laundering. 100 = most free. Central bank approval is required for both residents and non-residents to hold foreign exchange accounts. listing about two dozen local and foreign Caribbean companies in 2005. Foreign currency transactions and current transfers are restricted by quantitative limits. Employees are guaranteed a minimum of two weeks of annual leave and are covered by unemployment benefits and National Insurance legislation. overall tax revenue as a percentage of GDP was 30. the government has intervened in the domestic credit market to influence interest rates. Other taxes include a value-added tax (VAT) and a tax on interest. Relatively moderate but unstable prices explain most of the monetary freedom score. an additional 10 percent is deducted from Barbados’s monetary freedom score to adjust for price control measures that distort domestic prices for basic food items and fuel. the offshore financial sector included over 4. operating. Foreign 100 2007 Index of Economic Freedom . the police and court systems are efficient and unbiased. or permission prior to importation and maintains restrictive sanitary and phytosanitary policies. Consequently. and borrow funds. controls 75 percent of the eastern Caribbean market. PROPERTY RIGHTS — 90% Private property is well protected. Although prices are generally set by the market.9 percent. and offshore banks. are high. Citicorp Merchant Bank initiated operations in 2001. MONETARY FREEDOM — 76. Enhancing labor market flexibility has become one of the key areas for further reform. and Caribbean banks based in other countries. including consumption and transfer payments. and closing a business are easy and free from burdensome regulation. an additional 20 percent is deducted from Barbados’s trade freedom score to account for non-tariff barriers. The top income tax rate is 37. In the most recent year. L L L L L L L L L L 50 100 FINANCIAL FREEDOM — 60% Barbados has a smaller financial sector than other Caribbean financial hubs.

” Belarus’s continuing dependence on Russian gas to meet its energy needs could be a problem because Russian gas giant Gazprom has signaled its intention to increase gas prices in early 2007. food How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. Belarus has a low average tariff rate. comp. but nontariff barriers lower its overall trade freedom score. and its overall score is below the regional average.7 million Official Development Assistance: Multilateral: $4 million Bilateral: $46 million (12% from the U. trade freedom. 40 @ @ @ @ @ 20 0 1995 2007 QUICK FACTS Population: 9.7 billion Exports: $15. mineral products. and this year it experienced a 1. B The economy is 47. Weak rule of law allows for significant corruption and insecure property rights. Belarus’s persistently low score has been blamed on the failure of post-Soviet reforms. The top income and corporate tax rates are a moderate 30 percent.4 percent free. ann. machinery and equipment.1% FDI (net inflow): $170. from outright restrictions to bureaucratic incompetence.) External Debt: $3.4% free 100 Europe Average = 67. and freedom from corruption are weak. metals. such as freedom from government. and although the government adds additional costs such as a value-added tax.6 @ @ @ @ @ @ @ @ @ @ @ @ @ @ 80 @ @ @@ @ @ @ @ @ @ @ @ @ @ @ @ 60 @ @ @ @ Belarus’s fiscal freedom scores highly.org/index. when Lukashenko vowed to guide his country toward a path of “market socialism.5 billion 11. and monetary freedom. which is politically influenced. property rights. Financial freedom. chemicals.970 per capita Unemployment: 1. revenue collected from taxes is relatively low. growth $6.8 million GDP (PPP): $68.S. The economy deteriorated after 1995. chemicals. which makes it the world’s 145th freest economy. The government dominates the banking sector. President Alexander Lukashenko declared himself the winner of the March 2006 elections—a result that was challenged by internal democratic opposition and Western observers. textiles Imports: $17. Belarus is ranked 41st among the 41 countries in the European region.7 billion Primarily machinery and equipment.BELARUS Rank: 145 Regional Rank: 41 of 41 elarus’s economy is 47.4% growth in 2004 6. 101 . Foreign investment in all sectors faces hurdles.8% 5-yr. Others are simply in line with world averages. investment freedom. according to our 2007 assessment.0 billion Primarily mineral products. Belarus’s economy has significant shortcomings.9% Inflation (CPI): 18.2 percentage point decrease overall.5 World Average = 60. BACKGROUND: Belarus won independence from the Soviet Union in 1991 but has retained close economic and political ties to Russia.

There are restrictions in the share of foreign investment in insurance organizations and banks. offers benefits approximately equivalent to 30 percent of an average worker’s annual salary.BELARUS’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 54. Obtaining a business license is difficult. TRADE FREEDOM — 62. An inefficient bureaucracy. The central bank is fully controlled by the government. The unemployment insurance system. Burdensome regulations discourage private enterprises.9 percent of its total revenues from state-owned enterprises and government ownership of property. resident and non-resident accounts. and the inefficient court system does not enforce contracts consistently. operate. and the top corporate income tax rate is 24 percent.7 0 INVESTMENT FREEDOM — 20% There are significant restrictions on capital transactions. Entrepreneurship should be easier for maximum job creation. Relatively high and unstable prices explain most of the monetary freedom score. Policies enacted in 2004 and 2005 curtailed competition in the insurance sector and led many companies to leave the market. = world average BUSINESS FREEDOM — 54. Capital transactions. sets prices of products made by state-owned enterprises.2% The weighted average tariff rate in Belarus was 8. LABOR FREEDOM — 64. overall tax revenue as a percentage of GDP was 18. The stock market is small and largely dormant. A handful of commercial banks dominate the financial sector and account for about 85 percent of banking assets. The overall freedom to start. and closing a business is very difficult. 102 2007 Index of Economic Freedom . an additional 15 percent is deducted from Belarus’s monetary freedom score to adjust for price control measures that distort domestic prices. Banks are frequently pressured into making politically motivated loans.4 20 10 20 26 64. and close a business is limited by the national regulatory environment.9% Belarus has moderate tax rates. an additional 20 percent is deducted from Belarus’s trade freedom score to account for non-tariff barriers. The government maintains extensive import licensing and quotas. Privatization is stalled.2 87. which comprised over half of all outstanding loans in 2004. including consumption and transfer payments. The non-salary cost of employing a worker is very high. and concerted resistance to the private sector all serve to hinder foreign investment. corruption. leading small and medium-sized private companies to concentrate in retail and catering. funded almost entirely by employers with some government assistance. and a turnover tax. The judiciary has proved neither independent nor objective by international standards. FREEDOM FROM GOVERNMENT — 66.9 percent between 2003 and 2005. where relatively low sunk costs prevent excessively high losses. All but one of the 31 banks are owned or controlled by the state. Consequently. invisibles.9 61. compared to the world average of 48 days. The legal system does not fully protect private property.9 percent in 2002. an ecological tax. Foreigners may not own land.4% Inflation is relatively high. FINANCIAL FREEDOM — 10% Belarus’s financial system is very heavily influenced by the government. Five of these banks are state-controlled. In the most recent year.6 percent. Foreign investment must be registered with the Minsk City Executive Committee. are high. The government subsidizes many basic goods and services. Consequently. In the most recent year. The top income tax rate is 30 percent.9% Total government expenditures. government spending equaled 36.5 62. and the government received 5. and barriers to credit are high. The non-bank financial sector is small and inhibited by state intervention and irregular regulatory enforcement. MONETARY FREEDOM — 61.9 66.7% The labor market operates under relatively flexible employment regulations that hinder employment and productivity growth. FREEDOM FROM CORRUPTION — 26% Corruption is perceived as widespread. averaging 13. and current transfers are subject to strict controls. the government extended the “golden share” rule to include companies in which the government has no claim at all. In March 2004. Other taxes include a value-added tax (VAT).5% Starting a business takes an average of 69 days. Belarus ranks 107th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. but dismissing a redundant employee is relatively costless.5 percent of GDP. and regulates prices in the retail sector. PROPERTY RIGHTS — 20% FISCAL FREEDOM — 87. L L L L L 50 L L L L L 100 100 = most free. Independent lawyers were barred from practicing in 1997. Foreign banks face high barriers.

monetary freedom. Investment freedom. Prime Minister Guy Verhofstadt and his Socialist–Liberal coalition have sought to ease the income tax burden and balance the budget. property rights. and chemicals. Over the past decade. transportation equipment.1 billion (2005 estimate) Exports: $298. Belgium scores highly in many areas. it has almost always scored in the low 70s.4 million GDP (PPP): $324. diamonds. Brussels also houses the headquarters of NATO and the European Union. As in many other European social democracies.0 billion Primarily machinery and equipment. food How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. government spending and income tax rates are exceptionally high in order to support an extensive welfare state.5% free 100 80 @ @ @ @ @@ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ 60 As a modern Western economy.4% growth in 2004 1.2 billion Official Development Assistance: Multilateral: None Bilateral: None External Debt: $980. vehicles. yet sluggish growth persists. bringing overall tax revenue to an uncommonly high 45. chemicals.1% FDI (net inflow): $8. Imports: $284. according to our 2007 assessment. This is a 0. B The economy is 74. Wallonia. The protection of property by a transparent rule of law encourages confidence among foreign investors. pharmaceuticals. chemicals.5 World Average = 60.6 20 0 1995 2007 QUICK FACTS Population: 10. oil products 103 . Belgium is ranked 10th freest among the 41 countries in the European region. growth $31. The services sector accounts for over three-quarters of GDP.1 billion 2. and its overall score is above the regional average. ann. and the capital city of Brussels.BELGIUM Rank: 17 Regional Rank: 10 of 41 elgium’s economy is 74. diamonds. 40 Europe Average = 67.3 percentage point increase. and business freedom are the strongest areas of the economy. Additional taxes complement the income and corporate levies.6 percent of GDP.4% Inflation (CPI): 2. As a member of the European Union.7 billion Primarily machinery and equipment. diamonds. Leading exports are electrical equipment.5 percent free.org/index. Since his re-election in 2003. BACKGROUND: Belgium is a federal state consisting of three regions: Flanders. which makes it the world’s 17th freest economy. partially reflecting new methodological detail.9% 5-yr.096 per capita Unemployment: 8. metals and metal products. comp. Belgium has a standardized monetary policy that yields relatively low inflation despite some government distortion in the agricultural sector. who enjoy excellent market access. food.

The non-salary cost of employing a worker can be very high. PROPERTY RIGHTS — 80% Property is well protected. The common EU weighted average tariff rate was 1. medicines. a transport tax. Belgium’s laws are codified. and a property tax. Regional authorities may subsidize medium. FREEDOM FROM CORRUPTION — 74% Corruption is perceived as minimal. government spending equaled 49.2% Belgium’s income tax rate is one of the world’s highest. and closing a business is very easy.6 percent. The overall freedom to start. 100 = most free. and dismissing a redundant employee is relatively costly. Belgium’s high labor costs are sustainable for high-value-added processes. waste handling. In the most recent year. compared to the world average of 48 days. There are some restrictions on non–European Union investment in public works as required under EU regulations. but labor market rigidities remain a major barrier to employing a worker. Finance and Insurance Commission supervises the financial sector. the government subsidizes agricultural production. Belgian law differentiates between EU and non-EU banks. Consequently. 10 percent is deducted from Belgium’s monetary freedom score to account for these policies. are very high. although firms from European Economic Area or World Trade Organization countries may be treated equally. The unemployment insurance system offers benefits that are worth approximately 50 percent of an average worker’s annual salary. Non-tariff barriers reflected in EU and Belgian policy include agricultural and manufacturing subsidies. Credit is allocated at market terms and is available to foreign and domestic investors without discrimination.8 76. distorting the prices of agricultural 104 2007 Index of Economic Freedom . In the most recent year. FISCAL FREEDOM — 62. TRADE FREEDOM — 76.2% Total government expenditures.8% Starting a business takes an average of 27 days.2 80 90 80 80 74 70. compulsory insurance. MONETARY FREEDOM — 80% Belgium is a member of the euro zone. Between 2003 and 2005. Banks are required to provide a minimum set of services under a “universal service” law. overall tax revenue as a percentage of GDP was 45. and close a business is strongly protected by the national regulatory environment. an additional 20 percent is deducted from Belgium’s trade freedom score. and the top corporate tax rate is 34 percent (composed of a 33 percent tax rate and a 3 percent surcharge). and the quality of the judiciary and civil service is high.7 percent in 2005.2 41. Price control policies affect water.6 percent of GDP. repatriation of profit. The world’s first stock market was organized in Antwerp. residents’ and non-residents’ accounts. although the process is often slow. and numerous financial service providers. and other market access restrictions. L L L L L L L L L L 50 100 INVESTMENT FREEDOM — 90% Most restrictions on foreign investment also apply to domestic investment. financial institutions. and the government received 4. Belgium has over 100 banks. but its corporate tax rate is moderate. There are no restrictions on the purchase of real estate. operate.and long-term borrowing. FREEDOM FROM GOVERNMENT — 41. Relatively low and stable prices explain most of the monetary freedom score.3 percent of its total revenues from state-owned enterprises and government ownership of property. The independent Banking.5 percent. Commercial regulations can hinder entrepreneurial activities. and capital markets are sound and well-established.5% The labor market operates under relatively flexible employment regulations that hinder employment and productivity growth. The top income tax rate is 50 percent. Obtaining a business license is relatively simple. and gas distribution.BELGIUM’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 90.6% Belgium’s trade policy is the same as those of other members of the European Union.6 62. including over 70 foreign banks. electricity. its weighted average annual rate of inflation was 2. including consumption and transfer payments. and petroleum products. regulatory and licensing restrictions. Authorization is required for investment in Belgian flag vessels operated by shipping companies that do not have their main offices in Belgium. automobiles. Entrepreneurship should be easier for maximum job creation. and contractual agreements are secure. Other taxes include a value-added tax (VAT). and insurance companies. Belgium ranks 19th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. especially for small and medium-size enterprises. Consequently.5 0 products. As a participant in the EU’s Common Agricultural Policy. = world average BUSINESS FREEDOM — 90. or transfer of capital. FINANCIAL FREEDOM — 80% Belgium has one of the world’s most developed financial systems. LABOR FREEDOM — 70.

manufactured goods. and soybeans. Government expenditures are likewise fairly low. Traditionally. B The economy is 63.7% free 100 80 @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @@ @@ @ @ @ @ @ @ @ @ @@ Belize rates highly in fiscal freedom.2% 5-yr. fish products. as is agriculture. pharmaceuticals How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage.747 per capita Unemployment: 11. papayas.4 million Primarily machinery and transport equipment. comp.6 20 0 1995 2007 QUICK FACTS Population: 0. financial freedom. International relations are dominated by a territorial dispute with Guatemala. but the government is fostering export diversification into other products. chemicals. Investment freedom. including shrimp. bananas. Prime Minister Said Musa was re-elected in March 2003. BACKGROUND: Belize is a parliamentary democracy and member of the British Commonwealth. and corruption are less strong.6% Inflation (CPI): 3. ann. citrus. and Belize suffers from one of the highest murder rates in the Caribbean region. corporate taxes are low. partially reflecting new methodological detail. Flexible labor regulations contribute to an elastic employment market with no major regulatory distortions. citrus. Low inflation and stable prices contribute positively to the economic climate. molasses.4 billion (2004 estimate) Exports: $506. wood Imports: $626.) External Debt: $1. sugar has been the principal export.3 million GDP (PPP): $1.9 million Official Development Assistance: Multilateral: $7 million Bilateral: $8 million (26% from the U. and government tax revenue is not particularly large as a percentage of GDP. property rights.BELIZE Rank: 56 Regional Rank: 13 of 29 elize’s economy is 63. A weak judicial system allows for political interference in the courts and significant corruption.3 World Average = 60. 105 . Tourism is a major contributor to the economy. growth $6. which makes it the world’s 56th freest economy.1% FDI (net inflow): $169.8 percentage points lower than last year. Despite a high top income tax rate. and its overall score is equal to the regional average. Crime is a serious problem. 60 40 Americas Average = 62. clothing. Foreign investment is hampered in a wide array of sectors by special licensing requirements. according to our 2007 assessment. Belize is ranked 13th out of 29 countries in the Americas.9 billion 4. freedom from government. but certain government price controls also exist.org/index.6% growth in 2004 7.S.1 million Primarily sugar. bananas. and foreign exchange regulations are neither consistent nor transparent. and labor freedom and somewhat highly in monetary freedom. fuels. Its overall score is 1.7 percent free. and the number of state-owned businesses is not significant.

The result is lengthy trial backlogs. There are five domestic commercial banks.9 percent of GDP.7% Starting a business takes an average of 45 days.1 73. sugar. INVESTMENT FREEDOM — 50% Belize generally is open to foreign investment but requires special licenses in commercial fishing within the barrier 106 2007 Index of Economic Freedom . FREEDOM FROM GOVERNMENT — 80. and restrictive import licensing rules add to the cost of trade. and the government received 1. Belize ranks 62nd out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. Despite a lack of transparency in the administration of some laws and procedures. and requires that repatriation be made through an authorized dealer. government spending equaled 28. beauty salons. = world average FINANCIAL FREEDOM — 50% Belize’s financial system is dominated by the banking sector. which is subject to political influence. real estate and insurance.8% Belize has a high income tax rate and a moderate tax rate. and restaurants and bars. quotas.4 percent in 2003. overall tax revenue as a percentage of GDP was 19. seven international banks. accounting and legal services. The International Financial Services Act promotes offshore financial services.8 80. Relatively low and stable prices explain most of the monetary freedom score. Consequently.2 79. The central bank rations its foreign exchange for invisible payments on an ad hoc basis. and the top corporate tax rate is 25 percent. Other taxes include a value-added tax (VAT) and a stamp duty. FREEDOM FROM CORRUPTION — 37% Corruption is perceived as significant.2% The weighted average tariff rate in Belize was 11.8 0 reef. MONETARY FREEDOM — 73.2 percent of its total revenues from state-owned enterprises and government ownership of property. In the most recent year. and the government offers extensive banking confidentiality. such as rice. three quasi-government banks. FISCAL FREEDOM — 79. There is a severe lack of trained personnel. and some small credit unions. and police officers often act as prosecutors in the magistrates’ courts. sugarcane farming. Foreign exchange shortages. but approval is required to secure a foreign currency loan from outside Belize. and controls the retail price of electricity. PROPERTY RIGHTS — 50% The constitution provides for an independent judiciary. BUSINESS FREEDOM — 76. and fuel. Subsidiaries of foreign banks are active and competitive. transportation. The government maintains the prices of some basic commodities.4 percent. The top income tax rate is 45 percent.5 50 50 50 37 82. tourism activities. operate. All capital transactions must be approved by the central bank. Expropriation of personal property is possible. LABOR FREEDOM — 82. Both residents and non-residents may hold foreign exchange accounts subject to government approval. In the most recent year.7 57. butane gas. Consequently. an additional 20 percent is deducted from Belize’s trade freedom score to account for non-tariff barriers. and the government assumed its debts.5% Inflation is fairly low.1% Total government expenditures.BELIZE’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 76. and close a business is relatively well protected by the national regulatory environment. 100 L L L L L L L L L L 50 100 = most free. averaging 3. and dismissing a redundant employee can be costless.8% The labor market operates under flexible employment regulations that can enhance employment and productivity growth. and closing a business is relatively easy. beans. obtaining a business license is relatively simple. including consumption and transfer payments. Plans to sell the Development Finance Corporation (the state development bank) were shelved. flour. Labor regulations do not distort efficient business activities to any considerable degree. three times longer than the world average of 48 days. entertainment. bread. and only authorized dealers are permitted to retain foreign currency. are very moderate. Entrepreneurship should be easier for maximum job creation. an additional 15 percent is deducted from Belize’s monetary freedom score to adjust for price control measures that distort domestic prices. The non-salary cost of employing a worker is low. merchandising. TRADE FREEDOM — 57.3 percent between 2003 and 2005. The overall freedom to start. The government affects the allocation of credit through the quasi-government banks. controls some payments.

2 million GDP (PPP): $8. Benin has pegged its currency to the euro. Cotton is the primary export and source of GDP. resulting in admirable price stability. Its overall score is 0. however. ann. comp. and Yayi Boni.9 billion Exports: $713.org/index.) External Debt: $1. was elected president in 2006. Relatively high tax rates on income and corporations dampen the fiscal score.1% growth in 2004 4. Economic reform has encouraged growth. Benin is ranked 20th out of 40 countries in the subSaharan African region.9 billion 3. and much of the population is engaged in agriculture. partially reflecting new methodological detail. 60 40 20 0 1995 2007 QUICK FACTS Population: 8.7 World Average = 60. by a serious lack of liberalization in many areas.9% FDI (net inflow): $60 million (gross) Official Development Assistance: Multilateral: $203 million Bilateral: $257 million (11% from the U. petroleum products How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. Kérékou won the presidency in 1996 and 2001. labor freedom. Corruption persists. but Benin remains underdeveloped. Government expenditures are moderate. Court enforcement of intrusive labor regulations and property rights is subject to pervasive political interference. property rights. Bureaucratic inefficiency and corruption hamper virtually all areas of the economy. but tax revenue collected is fairly low as a percentage of GDP. according to our 2007 assessment.1 billion Primarily food. who had seized power in 1972.6 @ @ @ @ @ @ @@ @ @ @ @ @ @ @ @ @ @ @ @ @@ @@ @ @@ @ @ @ @ @@ @ @ @ Benin scores well on freedom from government and monetary freedom. 107 .091 per capita Unemployment: n/a Inflation (CPI): 0. capital goods.S.8 percent free.8% free 100 80 Sub-Saharan Africa Average = 54. cocoa Imports: $1. growth $1. Economic development has been hampered. palm products. and its overall score is equal to the regional average. such as investment freedom.5 percentage point higher than last year. Foreign investment is subject to government approval and regulations that require the hiring of native Beninese. accepted defeat in 1991. and both the port of Cotonou and trade with Nigeria are central to the economy. BACKGROUND: Benin became one of the first African countries to move peacefully from dictatorship to elected government when Mathieu Kérékou.5% 5-yr. which makes it the world’s 114th freest economy. and state-owned businesses do not figure significantly into Benin’s revenue. former president of the regional development bank.BENIN Rank: 114 Regional Rank: 20 of 40 enin’s economy is 54.2 million Primarily cotton. B The economy is 54. and business freedom. crude oil.

PROPERTY RIGHTS — 30% Benin’s justice system is weak and subject to corruption. The Central Bank of West African States (BCEAO) governs Benin’s financial institutions. and foreign ownership in banking and insurance is prominent. Benin’s underdeveloped financial system is concentrated in banking. Other taxes include a value-added tax (VAT). = world average FINANCIAL FREEDOM — 60% BUSINESS FREEDOM — 47. transparency in financial operations. except for investments in enterprises. Relatively low and stable prices explain most of the monetary freedom score. Banks experience difficulty with non-performing loans and recovering collateral on those loans. Benin uses the CFA franc.1 percent of its total revenues from state-owned enterprises and government ownership of property.9% Total government expenditures. and levies import taxes to protect “strategic products” such as rice and sugar against world price fluctuations.5% Benin has high tax rates. The eight BCEAO member countries use the CFA franc. and a tax on insurance contracts. or corporations.6 78. In the most recent year. Both obtaining a business license and closing a business can be difficult. which is pegged to the euro.8 percent of GDP. L L L L L L L L L L 50 100 100 = most free.5 30 60 30 29 48.5% As a member of the West African Economic and Monetary Union. The government requires part-Beninese ownership of any privatized company. a property tax. Inflation in Benin averaged a relatively low 3. There are many microcredit and savings and loan institutions. In the most recent year. applies selected import bans. but dismissing a redundant employee can be relatively costless. branches.7 percent in 2004.9 82. The cotton sector benefits from government subsidies and price supports. The overall freedom to start. FREEDOM FROM CORRUPTION — 29% Corruption is perceived as widespread. Consequently. operate. The customs process is inefficient and corrupt. 108 2007 Index of Economic Freedom . Privatization of public enterprises has been slow. and the government received 6. and the top corporate tax rate is 38 percent. are moderate. and fraud prevention are weak. including direct investment.2 54. an additional 5 percent is deducted from Benin’s monetary freedom score to adjust for price control measures that distort domestic prices. compared to the world average of 48 days. Restrictions on increasing or contracting the number of working hours are very rigid. The banking sector is predominantly private. and close a business is significantly limited by the national regulatory environment. Foreign exchange accounts must be authorized by the government and the Central Bank of West African States (BCEAO). including consumption and transfer payments. There are no controls on the purchase of land by non-residents. are subject to reporting requirements and government and BCEAO approval. The non-salary cost of employing a worker is high. Bureaucratic procedures are not streamlined and are rarely transparent. overall tax revenue as a percentage of GDP was 13. and the government restricts some imports. and backlogs of civil cases cause long delays.2% FREEDOM FROM GOVERNMENT — 87. TRADE FREEDOM — 54. Consequently. Credit is allocated on market terms and is available without discrimination.BENIN’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 47. government spending equaled 20. Widespread corruption in public administration clouds the business environment and is a major disincentive to investment. pegged to the euro. LABOR FREEDOM — 48. MONETARY FREEDOM — 82.2% Starting a business takes an average of 31 days. Benin’s labor market flexibility is one of the 20 lowest in the world. Legal and regulatory requirements can be burdensome. Many capital transactions. FISCAL FREEDOM — 78.2 percent. There is no separate commercial court system.9 percent between 2003 and 2005. Benin ranks 88th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005.5 87. The labor market operates under highly restrictive employment regulations that hinder employment and productivity growth. an additional 20 percent is deducted from Benin’s trade freedom score to account for these non-tariff barriers. Entrepreneurship should be easier for maximum job creation. The top income tax rate is 40 percent.2 0 INVESTMENT FREEDOM — 30% Bureaucracy is inefficient and subject to corruption. Enforcement of contracts.6% Benin’s weighted average tariff rate was 12.

tin Imports: $2. Restrictive labor laws further cloud the business climate. BACKGROUND: Bolivia’s history has been characterized by much authoritarianism punctuated by periodic bouts of democracy. forced transactions.3 billion Primarily petroleum products. Pervasive corruption and significant regulation are major hurdles for foreign investment. Unable to defend the rule of law. comp.6 20 0 1995 2007 QUICK FACTS Population: 9 million GDP (PPP): $24. food. Its overall score is 4. soybeans and soy products. two successive constitutional presidents were removed from office by mob action in 2003 and 2005. Morales has partially nationalized Bolivia’s hydrocarbon industry and declared his intention to redistribute private lands to indigenous supporters.1 billion Exports: $2.720 per capita Unemployment: 8.BOLIVIA Rank: 112 Regional Rank: 25 of 29 olivia’s economy is 55 percent free.5 billion Primarily natural gas. Bolivia is ranked 25th out of 29 countries in the Americas. 60 40 Americas Average = 62.4% FDI (net inflow): $113.1 percentage points lower than last year.5 billion 3. insecticides. Bolivia suffers from low scores in investment freedom.1 billion (13% from the U. A very low income tax rate and moderately low corporate tax rate give it an enviable fiscal freedom score. B The economy is 55% free 100 80 @ @ @ @ @ @ @ @ @ @@ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @@ @ @ @ @ @ @ @@ Bolivia rates highly in fiscal freedom and solidly in freedom from government and monetary freedom. and even expropriation. automobiles. social unrest compounded fiscal pressures. paper.6% 5-yr. although prices are unstable and the government imposes de facto price controls on most utilities.org/index. crude petroleum.3 World Average = 60. the democratically elected government reduced the state’s role through partial privatization and lowered taxes and tariffs. property rights. and from 1993 to 1997. labor freedom. democracy returned to the country.7% Inflation (CPI): 4. Following an economic downturn in 1999. soybeans 109 . which makes it the world’s 112th freest economy. partially reflecting new methodological detail. Inflation is not high. as is possible nationalization of the energy sector.7 million Official Development Assistance: Multilateral: $285 million Bilateral: $1.S. In the 1980s. and private property can be subject to bureaucratic interference. and its overall score is well below the regional average. growth $2. according to our 2007 assessment. In December 2005. and freedom from corruption.) External Debt: $6. Rule of law is weak. plastics.6% growth in 2004 2. How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. ann. zinc ore. Its freedom from government rating is also relatively positive despite a large amount of government spending. aircraft and aircraft parts. Evo Morales was elected as the first indigenous Bolivian president on a platform of anti-globalization.

However. For that reason. savings and loans. or repatriation of profits. Both residents and non-residents may hold foreign exchange accounts. Expropriation is very possible.3% Bolivia’s total government expenditures. of which three were foreign-owned and others had some level of foreign ownership. The legal process is time-consuming and subject to political influence and pervasive corruption. although foreign borrowers may find it difficult to qualify for loans. The insurance sector is small. and garbage collection. L L L L L 50 L L L L L 100 100 = most free. In early 2006. the National Chamber of Commerce.3 69. averaging 5 percent between 2003 and 2005. are moderate.2% Bolivia’s weighted average tariff rate was 5. Bolivia had 12 commercial banks in 2005. FINANCIAL FREEDOM — 60% Bolivia’s financial sector is concentrated in banking. PROPERTY RIGHTS — 30% Legal protection of private property is weak. potable water. an additional 20 percent is deducted from Bolivia’s trade freedom score to account for these non-tariff barriers. Obtaining a business license is relatively simple. Capital markets are focused on trading in government bonds. and a property tax. Bolivia ranks 117th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. In the most recent year. but publicsector corruption is a major challenge to foreigners who want to establish a business. and close a business is restricted by the national regulatory environment. and credit unions. The energy sector is heavily regulated. A 2005 hydrocarbons law increased state control to 50 percent of production by raising taxes and royalties. MONETARY FREEDOM — 70. FISCAL FREEDOM — 93.3% Starting a business takes an average of 50 days. Consequently. and issues related to the enforcement and protection of intellectual property rights add to the costs of trade. Government regulations effectively control prices for hydrocarbons and most public utilities. In the most recent year. FREEDOM FROM CORRUPTION — 25% Corruption is perceived as widespread. The non-salary cost of employing a worker is moderate. overall tax revenue as a percentage of GDP was 15 percent. government spending equaled 33 percent of GDP. with assistance from USAID. transfers. compared to the world average of 48 days. red tape and the lack of transparency still hinder entrepreneurial activities. FREEDOM FROM GOVERNMENT — 74. but dismissing a redundant employee can be very costly. The overall freedom to start.9 30 60 30 25 35 0 INVESTMENT FREEDOM — 30% In general. ordering companies to give up control of fields and accept much tougher operating terms or leave. but import bans. = world average BUSINESS FREEDOM — 62. restrictive sanitary and phytosanitary rules. and several microfinance institutions. foreign investment laws are simple. and the corporate tax rate is 25 percent. Public officials sometimes ask for bribes to speed up bureaucratic procedures or not to initiate adverse actions. export subsidies. has established a local Arbitration Tribunal. access to foreign exchange.2 74.BOLIVIA’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 62. and closing a business is relatively easy. Relatively moderate and unstable prices explain most of the monetary freedom score. operate. The government has established the minimum wage for the public and private sectors. an additional 15 percent is deducted from Bolivia’s monetary freedom score to adjust for price control measures that distort domestic prices. LABOR FREEDOM — 35% The labor market operates under highly restrictive employment regulations that hinder employment and productivity growth. Financial sector regulations and accounting standards are somewhat burdensome and do not conform to international standards. Consequently. The government has made progress in lowering trade barriers and simplifying the trade regime. and price controls are maintained for petroleum products. About 65 percent of the work force participates in the informal economy.9 percent of its total revenues from state-owned enterprises and government ownership of property. Credit is allocated on market terms. transactions. although corporate debt and mutual funds have grown in recent years. Other taxes include a value-added tax (VAT).3 70.2 93. Government-owned banks no longer exist. purchase of real estate. There are no restrictions or controls on payments. including consumption and transfer payments. The top income tax rate is 13 percent. Entrepreneurship should be easier for maximum job creation.2% Bolivia has low tax rates. a transaction tax. and the government received 0. the government nationalized the natural gas industry. The Investment Law provides that investors may submit their differences to arbitration in accordance with the constitution and international norms.9% Inflation is moderate. TRADE FREEDOM — 69. 110 2007 Index of Economic Freedom .4 percent in 2004.

growth $7.1 billion Primarily machinery and equipment. and trade disputes must be handled among the claimants or out of the country. chemicals. 37. The economy is 54.0% Bosnian–Croat Federation (2003).032 per capita Unemployment: 44. partially reflecting new methodological detail. The income tax rate is enviably low. ann. BACKGROUND: The 1995 Dayton Agreement signaled Bosnia–Herzegovina’s secession from the former Yugoslavia. two separate governing entities exist along ethnic lines: Republika Srpska and the Bosnian–Croat Federation. but government price controls in some sectors lower Bosnia’s overall monetary score. Bosnia faces many challenges associated with recovering from a decade-long civil war.1% 5-yr. Commercial courts do not exist. comp. Inflation is less than 2 percent. Freedom from government. clothing. according to our 2007 assessment.2 percentage points lower than last year. and local courts are subject to substantial political interference and lack the resources to prosecute complex crimes.5 billion 6. and the corporate tax rate is moderate.7 percent free.) External Debt: $3. The main exports are wood.6 80 @ @ @@ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ 60 40 @ @ @ @ @ @ @ 20 0 1995 2007 QUICK FACTS Population: 3.2 billion Exports: $2.0% Republika Srpska (2003) Inflation (CPI): 0. Government expenditure is high but does not result in a more efficient or streamlined bureaucracy. and metal. Within its loose central government. and its overall score is well below the regional average.S. The economy still relies heavily on agriculture.9 million GDP (PPP): $27.5 World Average = 60.3% FDI (net inflow): $495. and freedom from corruption are problems. although other taxes create a significant drag.org/index. property rights. Rule of law is weak. and the complex and irregularly enforced regulations affect almost everything. wood products How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage.2% growth in 2004 5.7% free 100 Europe Average = 67. Bosnia is ranked 38th freest among the 41 countries in the European region. which makes it the world’s 115th freest economy. food 111 . in addition to a large informal sector.BOSNIA AND HERZEGOVINA Rank: 115 Regional Rank: 38 of 41 T he economy of Bosnia and Herzegovina (Bosnia) is 54. paper. Bosnia scores highly in fiscal freedom and monetary freedom. The state’s overly large role.6 million Official Development Assistance: Multilateral: $351 million Bilateral: $336 million (18% from the U. The overall score is 2. characterized by an intrusive bureaucracy and costly registration procedures.9 billion Primarily metals. Its score has risen dramatically since 1998. fuels. has yet to be fully addressed. Imports: $7.

Obtaining a business license is difficult. Contract and property rights are almost unenforceable.6 percent of GDP. The top income tax rate is 10 percent. accounting for 86 percent of banking capital in 2004. PROPERTY RIGHTS — 10% FISCAL FREEDOM — 90% Bosnia and Herzegovina has a very low income tax rate and a moderate corporate tax rate. gas. Rigidity in wage determination hinders job creation and worker mobility. and weak judicial structures. Most of Bosnia and Herzegovina’s banks are now private.8% Starting a business takes an average of 54 days. The judicial system does not cover commercial activities adequately. Judges typically request bribes and respond to pressure from public officials.3 percent of its total revenues from state-owned enterprises and government ownership of property. government spending equaled 46. but dismissing a redundant employee is relatively costless. The non-salary cost of employing a worker is very high. The government maintains import and export restrictions. and telecommunications services. International accounting standards are in the process of being adopted. Corruption is perceived as widespread. In the most recent year. Entrepreneurship should be easier for maximum job creation. as well as restrictive import licensing rules.9 percent in 2001. The overall freedom to start. Banking reform begun in 1997 led to consolidation and privatization.8 70. burdened with non-performing loans. an additional 10 percent is deducted from Bosnia and Herzegovina’s monetary freedom score to adjust for price control measures that distort domestic prices.2 90 45. Consequently. and the top corporate income tax rate is 30 percent.2% The weighted average tariff rate in Bosnia and Herzegovina was 4. including consumption and transfer payments. are high.BOSNIA & HERZEGOVINA’S TEN ECONOMIC FREEDOMS INVESTMENT FREEDOM — 50% Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 53. most of them foreign-owned. LABOR FREEDOM — 57. non-transparent business procedures. and the government received 11. operate. Heavily bureaucratic systems that lack transparency remain a problem for investors and entrepreneurs. FREEDOM FROM CORRUPTION — 29% FREEDOM FROM GOVERNMENT — 45. Relatively low and stable prices explain most of the monetary freedom score.3% The labor market operates under restrictive employment regulations that hinder employment and productivity growth. and populated by numerous. Foreign investment laws grant national treatment to foreign investors. Each region has an underdeveloped non-bank financial sector and a small stock exchange. protecting them from changes in legislation and against expropriation and nationalization of assets.1 50 60 10 29 57. and customs procedures are inefficient. Arms and media are the only sectors subject to restrictions. Court decisions are difficult to enforce. The Republika Srpska had 10 privately owned banks in 2004.4 percent. compared to the world average of 48 days. Other taxes include a sales tax and a property tax. and close a business is limited by the national regulatory environment. undercapitalized private banks. L L L L L L L L L L FINANCIAL FREEDOM — 60% The country’s two autonomous government entities operate functionally independent financial systems. The inherited banking system was dominated by large state-owned banks. There are few restrictions on capital transactions and foreign exchange accounts. 112 2007 Index of Economic Freedom . averaging 2 percent between 2003 and 2005. = world average BUSINESS FREEDOM — 53. Price controls apply to electricity. overall tax revenue as a percentage of GDP was 22. The main obstacles to foreign investment are a complex legal and regulatory framework. an additional 20 percent is deducted from Bosnia and Herzegovina’s trade freedom score to account for these non-tariff barriers. A privatization law passed by the lower and upper houses of the Federation parliament would prohibit the sale of state-owned companies to foreign-owned companies unless they were majority-owned by the private sector. Long-term lending is hindered by insufficient enforcement of contracts. In the most recent year. Bosnia and Herzegovina ranks 88th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005.6% Total government expenditures.6 81. Informal employment is estimated at about 30 percent of total employment. but closing a business can be relatively easy. Consequently. MONETARY FREEDOM — 81.3 0 50 100 100 = most free. TRADE FREEDOM — 70.1% Inflation is low. There are no commercial courts and no efficient ways to resolve commercial disputes.

nickel.9 percentage points lower than last year. textiles Imports: $2.8 billion Primarily food. fuel and petroleum products.945 per capita Unemployment: 23. However. it still suffers from high unemployment and poverty.) External Debt: $524. growth $9. and despite efforts to diversify the economy. 60 @ @ 40 World Average = 60.7 20 0 1995 2007 QUICK FACTS Population: 1. textiles. BACKGROUND: Botswana. and labor freedom.6 billion 4. which makes it the world’s 38th freest economy. ann. Botswana is ranked 2nd out of 40 countries in the sub-Saharan Africa region. investment freedom. wood and paper products How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. The overall business climate is superior for Africa but also is a model for the world. meat. B The economy is 68. Botswana’s scores in freedom from government and trade freedom are somewhat lower. The financial sector is a regional leader. partially reflecting new methodological detail.4% free 100 80 @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ Botswana is an economic regional leader.8% 5-yr. has a market-oriented economy that encourages private enterprise and is ranked as Africa’s least corrupt. a multi-party democracy since 1966. It also had one of the world’s highest average growth rates during the past four decades and possesses Africa’s highest sovereign credit rating.7 billion Primarily diamonds. financial freedom. Botswana has one of the world’s highest HIV/AIDS infection rates. machinery.4 percent free. 113 .BOTSWANA Rank: 38 Regional Rank: 2 of 40 otswana’s economy is 68. and political turmoil in neighboring Zimbabwe is an ongoing concern. Businesses take a longer than average time to open. and its overall score is well above the regional average.9% growth in 2004 5. Privatization is moving forward.6 Sub-Saharan Africa Average = 54. thanks to ease of hiring and firing employees. according to our 2007 assessment. copper. with an independent central bank and little government intervention. but government expenditures are high. scoring highly in property rights. and about 50 percent of government revenue. electrical goods. Labor freedom is strong. diamonds account for 80 percent of exports. and licenses are sometimes subject to burdensome regulation. transport equipment.8% Inflation (CPI): 6.8 million GDP (PPP): $17.0 million Exports: $3. over 40 percent of GDP.org/index.S.9% FDI (net inflow): –$227. soda ash. comp. Its overall score is 1.3 million Official Development Assistance: Multilateral: $18 million Bilateral: $37 million (59% from the U.

Relatively high and unstable prices explain most of the monetary freedom score. = world average FINANCIAL FREEDOM — 70% BUSINESS FREEDOM — 66. including consumption and transfer payments. There were five private commercial banks in 2004. The overall freedom to start. an additional 20 percent is deducted from Botswana’s trade freedom score to account for these non-tariff barriers. government spending equaled 43. The state owns the Botswana Motor Vehicle Insurance Fund.5% Total government expenditures. and the government received 3. There are no restrictions on capital transactions or foreign exchange accounts. Obtaining a business license can be difficult. but the government maintains import bans and a restrictive standards regime. residents’ and non-residents’ accounts. including butchery and produce.6% Starting a business takes an average of 108 days. supermarkets.6 59. TRADE FREEDOM — 59. although the government provides subsidized loans. are high. a serious and increasing backlog of cases prevents investors from having timely trials. and close a business is relatively well protected by the national regulatory environment. The government has implemented reforms expediting the process of applications for business ventures.6 percent of GDP. gasoline filling stations. The legal system is sufficient to conduct secure commercial dealings. FREEDOM FROM GOVERNMENT — 54. particularly in the non-mining sector. averaging 8.9% The labor market operates under relatively flexible employment regulations that could be improved to enhance employment and productivity growth. Consequently.8 70 70 70 59 74. The government has introduced bonds of varying maturities to stimulate the domestic capital market. or international transfers.BOTSWANA’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 66.6 54. Botswana’s banking system is competitive and one of the most advanced in Africa. an additional company tax. PROPERTY RIGHTS — 70% The constitution provides for an independent judiciary. Consequently. The insurance sector and pension funds are active. and retail. In the most recent year.4 percent of its total revenues from state-owned enterprises and government ownership of property.6% Botswana has one of Southern Africa’s lower tax burdens. FREEDOM FROM CORRUPTION — 59% Corruption is perceived as present. but private firms dominate the insurance sector.9 percent.9 0 INVESTMENT FREEDOM — 70% The laws encourage foreign investment. The central bank is independent. Both the top income tax rate and the top corporate tax rate are 25 percent.8% Inflation is relatively high. operate. all of them foreign-owned. Botswana is trying to become a regional financial hub and offers incentives to financial institutions and facilitates the free flow of financial resources. but closing a business is easy. compared to the world average of 48 days. L L L L L 50 L L L L L 100 100 = most free.6% The weighted average tariff rate in Botswana was 10.6 82. The government has created a one-stop shop for investors to avoid unnecessary bureaucratic steps to start a new business. The stock market is small but growing. Other taxes include a value-added tax (VAT).5 76. overall tax revenue as a percentage of GDP was 36. LABOR FREEDOM — 74. There are very few non-tariff barriers to trade. Entrepreneurship should be easier for maximum job creation. In the most recent year. Credit is allocated on market terms. FISCAL FREEDOM — 82. an additional 5 percent is deducted from Botswana’s monetary freedom score to adjust for price control measures that distort domestic prices. Labor laws do not mandate retraining or replacement before firing a worker. and the government respects this provision in practice. and a fuel tax.2 percent in 2005. but the government maintains price policies for some agricultural and livestock goods. The non-salary cost of employing a worker is very low. bars and liquor stores. but dismissing a redundant employee can be costly.3 percent between 2003 and 2005. Botswana has pursued plans for privatization and other initiatives to improve the performance of its remaining public-sector enterprises. MONETARY FREEDOM — 76. Most prices are set by the market. 114 2007 Index of Economic Freedom . The government is involved in the banking sector through state-owned financial institutions. Botswana ranks 32nd out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. The government restricts foreign investment in some areas reserved for Botswana citizens. However.

growth $8. investment freedom.0 billion Exports: $109. as are other areas of the public sector.195 per capita Unemployment: 11. starting a business takes more than three times the world average. chemical products. B The economy is 60.S. and freedom from corruption.1 billion Primarily transport equipment. oil How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. and overall tax revenue is not high as a percentage of GDP relative to neighboring countries. automobiles Imports: $80.1 billion Primarily machinery. Because of serious regulatory inflexibility.9% growth in 2004 2. footwear. Brazil suffers from a highly inefficient and corrupt bureaucracy. 60 40 Americas Average = 62. ann. soybeans. Brazil suffers from serious obstacles to long-term investment and economic growth.5% Inflation (CPI): 6.8 percentage point lower than last year.6% FDI (net inflow): $8. It has moderate tax rates. which makes it the world’s 70th freest economy. Its overall score is 0. and the government remains heavily involved in the banking and financial sectors. electrical and transport equipment. Agriculture and industry account for 10 percent and 40 percent. according to our 2007 assessment. and a complicated regulatory system. The judicial system is inefficient and subject to corruption. iron ore. including a convoluted tax system. government management of most of the oil and electricity sectors and a significant part of the banking system.6% 5-yr. 115 .org/index. a weak judiciary.BRAZIL Rank: 70 Regional Rank: 17 of 29 razil’s economy is 60.5 trillion 4. BACKGROUND: This vast democratic nation possesses abundant natural resources but is known for its high and persistent income inequality. which contributes to low scores in business freedom.6 20 0 1995 2007 QUICK FACTS Population: 183. barriers to foreign investment in some sectors. Significant restrictions on foreign capital exist in a wide variety of sectors. respectively. both personal and corporate. comp. partially reflecting new methodological detail. of Brazil’s gross domestic product. and its overall score is slightly below the regional average.7 billion Official Development Assistance: Multilateral: $173 million Bilateral: $366 million (6% from the U. Brazil is ranked 17th out of 29 countries in the Americas.3 World Average = 60. financial freedom.) External Debt: $222.9 percent free.9 million GDP (PPP): $1.9% free 100 80 @ @ @ @ @ @ @ @ @ @ @ @ @@ @ @ @ @ @ @ @@ @ @@ @ @@ @@ @ @@ @ @@ Brazil is a regional economic power and receives high scores in fiscal freedom and freedom from government. coffee.

The government maintains several specialized financial institutions. Consequently. are relatively high. and closing a business is very difficult. 100 = most free.8 0 additional 10 percent is deducted from Brazil’s monetary freedom score to adjust for price controls. health services.5 percent. Relatively high and unstable prices explain most of the monetary freedom score.6 percent in 2004. TRADE FREEDOM — 64. an additional 20 percent is deducted from Brazil’s trade freedom score to account for these non-tariff barriers. setting up new companies is complex. The central bank must approve outward direct investment in some cases. and the sector is dominated by two publicly controlled banks with half of all assets. = world average BUSINESS FREEDOM — 53.6 88. The top 10 domestic banks hold two-thirds of total assets. The growing insurance market remains dominated by a few large firms. Despite state involvement. Decisions can take years. The top income tax rate is 27. Entrepreneurship should be easier for maximum job creation. FREEDOM FROM CORRUPTION — 37% Corruption is perceived as significant. Other taxes include a financial transactions tax and a tax on interest. and plagued by problems relating to lack of resources and training of officials. and dismissing a redundant employee can be costly. Brazil’s judiciary is inefficient.BRAZIL’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 53. However. The process for opening a business requires about 100 different documents. and electricity have been privatized.8 72. subject to political and economic influence.9 percent of GDP. overall tax revenue as a percentage of GDP was 18 percent.8% The labor market operates under relatively flexible employment regulations that could be improved to enhance employment and productivity growth. government spending equaled 20.3% Starting a business takes an average of 152 days. banking and capital markets are diversified. mail and telegraph. compared to the world average of 48 days. In the most recent year. The National Petroleum Agency fixes the wholesale price of fuel. and the government controls airfare prices. FISCAL FREEDOM — 88. and issues involving the enforcement and protection of intellectual property rights persist. restrictive regulatory and licensing rules. and the top corporate tax rate is 25 percent (a 15 percent tax rate and 10 percentage point surcharge). The government continues to liberalize its trade regime. rural property. FREEDOM FROM GOVERNMENT — 88. the government oversees prices through regulatory agencies. There are about 200 public and private commercial banks and many non-banking financial institutions. PROPERTY RIGHTS — 50% Contracts are generally considered secure.6% Inflation averaged a relatively high 7.6 50 40 50 37 63. FINANCIAL FREEDOM — 40% Brazil’s financial system is South America’s largest and one of the largest among all emerging markets. including transfers and remittances. and aerospace. and competitive. and the government received 3 percent of its total revenues from state-owned enterprises and government ownership of property. an 116 2007 Index of Economic Freedom . The overall freedom to start. LABOR FREEDOM — 63. The stock market is not a major source of corporate finance. L L L L L L L L L L 50 100 INVESTMENT FREEDOM — 50% Foreign capital may enter freely and by law receives national treatment. Obtaining a business license is difficult. but it is important to specify the jurisdiction for any disputes.6% Brazil has moderate tax rates. and legal restrictions prohibit foreign participation in certain economic activities. operate. Benefits mandated by the rigid labor legislation amplify the overall labor cost. where it has broad administrative discretion.8% Total government expenditures. and close a business is limited by the national regulatory environment. including consumption and transfer payments. Foreign ownership of rural land and land adjacent to national borders is prohibited. telecommunications. fishing. In the most recent year. There are limited restrictions on foreign exchange accounts. but export support programs. media. aviation. causing more appeals than would otherwise occur.3 64.8 88. and decisions of the Supreme Federal Tribunal are not automatically binding on lower courts. dynamic. Although such public services as railways. Foreign investment is restricted in nuclear energy. The non-salary cost of employing a worker is high. Brazil ranks 62nd out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. Consequently. quotas and import bans.8% The weighted average tariff rate in Brazil was 7.5 percent between 2003 and 2005. MONETARY FREEDOM — 72. but it is growing and trading is active.

Bulgaria is ranked 29th freest among the 41 countries in the European region. Its overall score is 2.1 percentage points lower than last year. An impressively low corporate tax rate of 15 percent complements a top income tax rate of 24 percent. ending nearly 50 years of Communist rule. opening.2% free 100 80 @ @ @@ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @@ @ @ @ @ @ @ @ @@ @ Bulgaria scores highly in fiscal freedom and receives positive marks in business freedom. and the inefficient bureaucracy bleeds over into other areas of economic freedom as well.5 World Average = 60. The country ratified its European Union accession treaty in 2005. Bulgaria held its first multiparty election since World War II. monetary freedom. Judicial corruption is an impediment to greater foreign investment. the EU could activate the treaty’s safeguard clause and delay Bulgaria’s entry until January 2008. and financial freedom. with a planned entry date of January 2007.7 billion Exports: $14.078 per capita Unemployment: 12. B The economy is 62.9% 5-yr.7% Inflation (CPI): 6. comp.BULGARIA Rank: 62 Regional Rank: 29 of 41 ulgaria’s economy is 62. and closing a business are all relatively efficient. which makes it the world’s 62nd freest economy. footwear. according to our 2007 assessment.5 billion Primarily machinery and equipment. copper. providing a highly flexible commercial environment. and its overall score is near the regional average.6 20 0 1995 2007 QUICK FACTS Population: 7.8 million GDP (PPP): $62. 60 40 Europe Average = 67. minerals. and raw materials How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. Licensing. chemicals and plastics.3% FDI (net inflow): $2.org/index.2 percent free.) External Debt: $15. and zinc play an important role in the industrial sector. BACKGROUND: In 1990. and property rights and business regulations are enforced in an arbitrary manner. but with several member states inclined to oppose further enlargement. fuels Imports: $16.7 billion Official Development Assistance: Multilateral: $361 million Bilateral: $265 million (15% from the U. Property rights and corruption are problems.0 billion Primarily clothing. Natural resources such as coal.7% growth in 2004 4. iron and steel. partially reflecting new methodological detail. and the economy has benefited from significant economic policy reform since the fall of the socialist government in 1996. metals and ores. growth $8. machinery and equipment. 117 . fuels.7 billion 5. Bulgaria still needs to develop a more independent judicial system.S. ann.

are high. The government is active in capital markets through the auction of short-term treasury bills.BULGARIA’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 66. arbitrary. and the government received 4. The banking system has undergone major reform since its virtual collapse in 1996. including consumption and transfer payments. Obtaining a business license can be difficult.8% The weighted average tariff rate in Bulgaria was 9. Consequently. operate. compared to the world average of 48 days. frequent changes in the legal framework. Foreign banks hold over 70 percent of bank capital.9 60. Residents may hold foreign exchange accounts subject to some restrictions. an additional 20 percent is deducted from Bulgaria’s trade freedom score to account for these non-tariff barriers. In the most recent year. In the most recent year. ownership and shareholders rights. The unemployment insurance system offers benefits to the unemployed for four to 12 months.7 60 60 30 40 71. government spending equaled 37. natural gas. TRADE FREEDOM — 60. and the corporate tax rate is a flat 15 percent.3 65. and corruption impede foreign investment. FREEDOM FROM GOVERNMENT — 65.6 percent in 2004. FREEDOM FROM CORRUPTION — 40% Corruption is perceived as significant. With the possibility of bailouts eliminated under the currency board.9% Starting a business takes an average of 32 days.8 percent of its total revenues from state-owned enterprises and government ownership of property. but the government oversees electricity.7% Inflation is moderate.8 91. non-residents may hold foreign exchange accounts without restriction. and a vehicle tax.5% The labor market operates under relatively flexible employment regulations that could be improved to enhance employment and productivity growth. The insurance market is fully private with the sale of two stateowned firms and has expanded rapidly since the adoption of the 1997 insurance law. = world average BUSINESS FREEDOM — 66. The top income tax rate is 24 percent. FISCAL FREEDOM — 91. Entrepreneurship should be easier for maximum job creation. overall tax revenue as a percentage of GDP was 22. the overall freedom to start. an additional 10 percent is deducted from Bulgaria’s monetary freedom score to adjust for price control measures that distort domestic prices.3% Bulgaria has low tax rates. LABOR FREEDOM — 71. Consequently. 118 2007 Index of Economic Freedom . averaging 5. but dismissing a redundant employee can be costless.1 percent between 2003 and 2005. FINANCIAL FREEDOM — 60% Bulgaria’s financial system is dominated by the banking sector.5 0 INVESTMENT FREEDOM — 60% The law mandates equal treatment for foreign and domestic investors. Judicial corruption is a serious problem. The market determines most prices. influenced strongly by the 1997 introduction of the currency board and stronger supervision and tighter prudential rules for the banking sector. and close a business is relatively well protected by the national regulatory environment. The main non-tariff barriers are issues involving the enforcement and protection of intellectual property rights and cumbersome. water. but closing a business is relatively easy. depending on the duration of employment.6 75. and pharmaceutical prices through its regulatory regime. Bulgaria ranks 55th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. banks have had to focus on sound banking practices. Government bureaucracy. MONETARY FREEDOM — 75. Foreign insurers are strong participants. a road tax. Arbitrary interpretation and enforcement of regulatory regimes by the bureaucracy are still seen as impediments to investment. PROPERTY RIGHTS — 30% Bulgaria’s constitution provides for an independent judiciary. Prior registration with the central bank is required for a few capital transactions. L L L L L 50 L L L L L 100 100 = most free. and inconsistent customs and regulatory policies. Registration of labor contracts is compulsory. There are 31 private banks and four public banks.6% Total government expenditures. Relatively moderate and unstable prices explain most of the monetary freedom score. and intellectual property rights. The non-salary cost of employing a worker is very high. Foreign ownership of land is permitted if the owners are from European Union countries or countries with an international agreement permitting such purchases.5 percent of GDP.3 percent. but ineffective rule of law limits investor confidence in the ability of the courts to enforce contracts. The well-maintained stock market is active but small. Other taxes include a value-added tax (VAT). Bulgaria requires approval for majority foreign ownership in some sectors. However.

) External Debt: $2. and licensing and bankruptcy procedures are costly. Government expenditure is moderate. according to our 2007 assessment. comp. growth $1. livestock. gold Imports: $888. HIV/AIDS infections are high. Business freedom. partially reflecting new methodological detail. Its overall score is 0. Instability in the Ivory Coast disrupts trade and has led to hundreds of thousands of returning émigrés.6 million Primarily cotton. 60 40 20 0 1995 2007 QUICK FACTS Population: 12. 119 . which makes it the world’s 113th freest economy. The top income and corporate tax rates are comparable to those in the United States. (Under a constitutional amendment adopted in 2002. BACKGROUND: Blaise Compaore seized power in a 1987 coup. and state-owned businesses are not a primary source of revenue. Burkina Faso experiences significant corruption. ann. labor freedom. and its overall score is slightly higher than the regional average.) Burkina Faso is a poor agrarian country beset by frequent drought. freedom from government. Many Burkinabé work abroad.2 million Primarily capital goods. and over 80 percent of the population is engaged in subsistence agriculture.5% growth in 2004 5. B The economy is 55% free 100 80 Sub-Saharan Africa Average = 54.org/index.0 million Official Development Assistance: Multilateral: $325 million Bilateral: $347 million (5% from the U. and monetary freedom.7% 5-yr. and won a third term as Burkina Faso’s president in November 2005.6 @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @@ @ @ @ @ @ @ Burkina Faso scores well in fiscal freedom.169 per capita Unemployment: n/a Inflation (CPI): –0.0 billion Exports: $438. The lack of a universal judicial system enforced by the government means that property rights cannot be guaranteed or adjudicated effectively. Extensive regulations prevent a flexible commercial environment.8 million GDP (PPP): $15. but overall tax revenue is quite low. food. petroleum How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage.7 World Average = 60. oversaw a transition to multi-party democracy.0 billion 5.4% FDI (net inflow): $34. Burkina Faso is ranked 19th out of 40 countries in the sub-Saharan Africa region. as local villages often use traditional courts.S. the president is limited to two terms starting in 2005.7 percentage point lower than last year. property rights. and remittances are a substantial source of income. As with most other nations in the region. and corruption are problems for Burkina Faso.BURKINA FASO Rank: 113 Regional Rank: 19 of 40 urkina Faso’s economy is 55 percent free.

9 88. a lack of financial and human resources.7% Starting a business takes an average of 34 days. obtaining a business license can be very difficult. In the most recent year. an insufficient number of courts. The government has pursued privatization and restructuring in the banking sector since the 1990s and limits its participation in the banking sector to 25 percent. Foreign investors are also hindered by poor infrastructure.1 0 INVESTMENT FREEDOM — 40% The investment code guarantees equal treatment of foreign and domestic investors.8 40 50 30 34 45.7 57. outdated legal codes. and the minimum wage is about 82 percent of the average valueadded worker. FREEDOM FROM CORRUPTION — 34% Corruption is perceived as significant. Night and weekend work are not allowed. targeted import bans. FISCAL FREEDOM — 84.2 84.1% The labor market operates under highly restrictive employment regulations that hinder employment and productivity growth.BURKINA FASO’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 42. MONETARY FREEDOM — 76. Burkina Faso ranks 70th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. the small financial system was composed primarily of eight commercial banks and a network of microfinance institutions and credit unions.9 76. operate. Payments and transfers over a specified amount require supporting documents. The executive has extensive appointment and other judicial powers. Residents may hold foreign exchange accounts with permission of the government and the Central Bank of West African States (BCEAO). and corruption is a growing problem. The insurance sector is small. an additional 20 percent is deducted from Burkina Faso’s trade freedom score to account for these nontariff barriers. Consequently. Villagers have their own customary or traditional courts.4 percent. government spending equaled 21. a weak legal system.2 percent of GDP. primarily from France or other West African countries. an additional 10 percent is deducted from Burkina Faso’s monetary freedom score to adjust for price control measures that distort domestic prices. Relatively moderate and unstable prices explain most of the monetary freedom score. FINANCIAL FREEDOM — 50% Burkina Faso’s financial system is underdeveloped and concentrated in banking. and growing corruption. and the top corporate tax rate is 35 percent. Systemic weaknesses in the justice system include removal of judges. 120 2007 Index of Economic Freedom .9% Burkina Faso’s total government expenditures. The eight BCEAO member countries use the CFA franc. The government imposes supplementary taxes on imports. overall tax revenue as a percentage of GDP was 11. but the Ministry of Industry. pegged to the euro.9% Burkina Faso has a moderate tax rate and a high corporate tax rate. All capital investments abroad by residents require government approval. Burkina Faso’s labor market flexibility is one of the 20 lowest in the world. Many state-owned companies have been privatized.8% Inflation in Burkina Faso is moderate. including consumption and transfer payments. restrictive licensing rules.7 percent. are moderate. FREEDOM FROM GOVERNMENT — 88. and excessive legal costs. In the most recent year. and close a business remains highly limited. PROPERTY RIGHTS — 30% Burkina Faso’s judicial system is weak. The top income tax rate is 30 percent. Nevertheless. Commerce. = world average BUSINESS FREEDOM — 42. but progress has not been smooth due to managerial delays and the government’s weakness.2% Burkina Faso’s weighted average tariff rate in 2004 was a relatively high 11. In 2004. but dismissing a redundant employee is relatively costless. L L L L L L L L L L 50 100 100 = most free. TRADE FREEDOM — 57. All major banks have some degree of foreign ownership. Consequently. but the government maintains price supports for the cotton sector and influences prices through the public sector. as do most commercial and financial credits. LABOR FREEDOM — 45. The overall freedom to start. Other burdensome taxes include a value-added tax (VAT) and a tax on insurance contracts.4 percent between 2003 and 2005. Entrepreneurship should be easier for maximum job creation. and closing a business is difficult. and proceeds from non-WEAMU (West African Economic and Monetary Union) countries must be surrendered to an authorized dealer. The government has made an effort to implement a one-stop system for registering businesses in an attempt to reduce the bureaucracy in recent years. The non-salary cost of employing a worker is high. The BCEAO governs Burkina Faso’s banking and other financial institutions. compared to the world average of 48 days. Burkina Faso participates in a regional stock exchange. and Mines must approve new investment. averaging 4. The market determines most prices.

) External Debt: $7. and corruption are weak.S. The country gained its independence from Britain in 1948 and has been ruled by a military junta since 1962.2 billion Primarily clothing. petroleum products.7 billion (2005 estimate) 3. The current political incarnation of martial rule is the State Peace and Development Council (SPDC).0% growth in 2004 10. property rights.BURMA (MYANMAR) Rank: 153 Regional Rank: 29 of 30 urma’s economy is 40.7% 5-yr. Its overall score is 0. transport equipment. The top income and corporate tax rates are moderate. but little real change has been forthcoming. according to our 2007 assessment. BACKGROUND: Burma is a repressive military dictatorship. however. fish. construction materials. Burma imposes severe restrictions on many areas of its economy.1% free 100 80 @ @ @ @ @ @ @ Burma scores well in fiscal freedom. crude oil 121 .1 World Average = 60. The SPDC offers its “roadmap for democracy” and National Convention to rewrite the constitution as examples of reform.0% (2005 estimate) Inflation (CPI): 4. beans.org/index. As an autocratic state. Heavy restrictions in the financial sector and labor market inflexibility are serious economic problems. growth $1. How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. State-owned businesses. and its overall score is much lower than the regional average. Investment freedom. pulses.1 percent free.6 20 0 1995 2007 QUICK FACTS Population: 50 million GDP (PPP): $78. freedom from government. Burma is ranked 29th out of 30 countries in the Asia–Pacific region. machinery. B The economy is 40. partially reflecting new methodological detail. 60 @ @ @@ @@ @@ @ @ @ @@ @ @ @ @ @ @ @ @ 40 @ @ @ @ @ @ @ @ @ @ Asia Average = 59. which makes it the world’s 153rd freest economy. and government tax revenue amounts to less than 5 percent of GDP. contribute about 30 percent of the government’s revenues. In addition. restrictive economic policies and international sanctions have impeded economic development. amounting to less than 10 percent of GDP. Foreign investment is adjudicated in each instance. plastics. wood products. foreign aid plummeted during the 1990s in response to the government’s harsh anti-democratic repression. rice Imports: $2. Government expenditures are likewise low. and trade freedom.5 percentage point higher than last year.5 billion Primarily fabric. financial freedom. Though Burma has significant national resources. comp. gas. The almost complete lack of a judicial system means that domestic and foreign companies must negotiate directly with the government to resolve disputes. ann.700 per capita (2005 estimate) Unemployment: 5.2 billion Exports: $3. with no clear guidelines for investors.2% FDI (net inflow): $214 million (gross) Official Development Assistance: Multilateral: $40 million Bilateral: $89 million (6% from the U.

Formal labor markets are not fully developed. Given the lack of available data.4 10 10 10 18 20 0 INVESTMENT FREEDOM — 10% Foreign investment is approved by the Cabinet on a caseby-case basis. and forced loans to government projects have almost frozen new deposits and smaller loans by private banks.3 percent. The state-owned insurer retains a near monopoly of that sector. Burma ranks 155th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. Once permission is granted. Pervasive corruption further serves to undermine the impartiality of the justice system. The government attempts to control some prices for such staple products as gasoline.9 88. Only 16 of the original 49 authorized foreign banks remain.6 percent of its total revenues from state-owned enterprises and government ownership of property. operating. The government imposes high import taxes. FISCAL FREEDOM — 87. restrictive permit and licensing rules. averaging 15 percent between 2003 and 2005. 122 2007 Index of Economic Freedom . so foreign investors who have had conflicts with the local government. overall tax revenue as a percentage of GDP was 3.1 percent of GDP. Labor regulations regarding wage rates and maximum work hours are not uniformly observed. although none have done so. Multiple exchange rates make conversion and repatriation of foreign exchange very complex and ripe for corruption. Customs corruption is common. The state uses forced labor in constructing military buildings and commercial enterprises. Consequently. so retailers often sell their stocks on the black market for a higher price.4% Inflation in Burma is high. LABOR FREEDOM — 20% The labor market is controlled and distorted by the state.1 percent in 2004. The government claims that no banks closed. 100 L L L L L L L L L L 50 100 = most free. Both the top income tax rate and the top corporate tax rate are 30 percent. or whose businesses have been illegally expropriated. Private and foreign companies are at a disadvantage in disputes with governmental and quasi-governmental organizations. The private banking sector crashed in February 2003. The government unilaterally sets public-sector wages and influences wage setting in the private sector. Burma’s economic statistics are questionable and need to be viewed with caution. Foreign banks are permitted to enter into joint ventures with domestic private banks. In the most recent year. PROPERTY RIGHTS — 10% Private property is not protected in Burma. The military regime controls all the courts. Consequently.BURMA’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 20 71. the foreign investor needs to get a business license to trade. MONETARY FREEDOM — 65. an additional 10 percent is deducted from Burma’s monetary freedom score to adjust for measures that distort domestic prices.3% Total government expenditures in Burma. FREEDOM FROM GOVERNMENT — 88. but it may be leased from the government. propane.8 87.8% The weighted average tariff rate in Burma was 4. government spending equaled 8. Foreign firms are prohibited from owning land.9% Burma has moderate tax rates. are low. Capital markets are largely absent. have had little success getting compensation. The government restricts foreign exchange accounts and current transfers and controls all capital transactions. Burma imposes restrictive trade policies designed to protect “crony” companies and state-owned enterprises. The often arbitrary and unpublished regulatory changes are barriers to improving the investment climate. Relatively high and unstable prices explain most of the monetary freedom score. and the government received 30. In the most recent year. TRADE FREEDOM — 71. Some private banks resumed full operation in 2004. However. BUSINESS FREEDOM — 20% Burma’s lack of legal and regulatory transparency virtually impedes creation of new businesses. Bureaucratic red tape often complicates the process for starting. and soap. cooking oil. and import bans. FREEDOM FROM CORRUPTION — 18% Corruption is perceived as widespread. = world average FINANCIAL FREEDOM — 10% Burma’s financial sector is subject to very heavy government intervention. and closing a business. an additional 20 percent is deducted from Burma’s trade freedom score to account for these non-tariff barriers. including consumption and transfer payments. the quantities of such products made available to customers are strictly rationed. There were five state-owned banks in 2005.3 65. Policy changes tend to be inconsistent and unpredictable.

inefficient. Burundi faces significant economic challenges. food 123 .0% FDI (net inflow): $3. financial freedom. Burundi is ranked 35th out of 40 countries in the sub-Saharan Africa region. petroleum products. A transitional government oversaw the adoption of a new constitution and elections in 2005. Agriculture accounts for nearly 50 percent of GDP. according to our 2007 assessment. Rule of law is highly politicized.6 @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ Burundi does not have very strong economic freedom in any category. cotton. and efforts to privatize publicly held enterprises have stalled. however. Its worst scores are for business freedom. BACKGROUND: Burundi gained its independence in 1962. and freedom from corruption. tea. refugees have been returning.8% free 100 80 Sub-Saharan Africa Average = 54.8% 5-yr. and Burundi remains very poor. The state remains heavily involved in the economy.1 million Primarily capital goods.9 billion 4. partially reflecting new methodological detail. The national inflation rate is also high but is not hyperinflationary. B The economy is 46. even though the top income and corporate tax rates are relatively high.7 World Average = 60.0 million (gross) Official Development Assistance: Multilateral: $196 million Bilateral: $217 million (20% from the U.BURUNDI Rank: 146 Regional Rank: 35 of 40 urundi’s economy is 46. sugar.8 percent free. Encouraged by growing stability and political progress. comp.S. Its overall score is 2. In 1993. which makes it the world’s 146th freest economy. from obtaining licenses to firing inefficient workers.) External Debt: $1.000 deaths and 1.org/index. investment freedom.3 million GDP (PPP): $4.8 percentage points lower than last year.4 billion (2004 estimate) Exports: $43. Corruption and economic mismanagement are common. and a majority of the population is engaged in subsistence agriculture. ann. Fiscal freedom is moderately strong due to low overall tax revenues as a percentage of GDP. and subject to erratic control over much of the country. property rights.1 million Primarily coffee.2 million refugees.8% growth in 2004 1. Imports: $175. Virtually all aspects of business are subject to intrusive regulation that inhibits business formation or survival. As a developing economy recovering from years of civil strife. growth $677 per capita Unemployment: n/a Inflation (CPI): 8. ethnic tensions sparked a civil war that resulted in an estimated 300. hides How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. 60 40 20 0 1995 2007 QUICK FACTS Population: 7. and its overall score is much lower than the regional average.

foreign investment. but documentation must be submitted to the central bank. The government influences prices through state-owned enterprises. and personal capital movements.1% Inflation in Burundi is high. There are very rigid restrictions on increasing or contracting the number of working hours. are high. operate. Most capital transactions.8 percent of GDP. The judiciary has proved especially ineffective in dealing with politically charged cases. The non-salary cost of employing a worker is low.2 0 INVESTMENT FREEDOM — 30% The government welcomes. Other taxes include a sales tax and a tax on interest. The government retains stakes in several banks.BURUNDI’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 40. overall tax revenue as a percentage of GDP was 23. FREEDOM FROM CORRUPTION — 23% Corruption is perceived as widespread.3 percent. Regulation of banking is largely bureaucratic and arduous. averaging 12 percent between 2003 and 2005. Judges. The government has removed most quantitative restrictions on imports but applies numerous fees and taxes on imports. Corruption in the customs and excise administration also adds to the cost of trade with Burundi. and the many loans made to the government and to state-owned enterprises have resulted in a large number of non-performing loans. In the most recent year.6% Burundi’s weighted average tariff rate was a high 14. such as the earlier coups and human rights abuses by members of the armed forces. FINANCIAL FREEDOM — 30% Burundi has a very small. but dismissing a redundant employee is relatively costly.6 80 60 68. = world average BUSINESS FREEDOM — 40. LABOR FREEDOM — 55. There are seven commercial banks. Consequently. The investment code reflects a policy of import substitution. and central bank approval is required to hold them abroad. Both the top income tax rate and the top corporate tax rate are 35 percent. Entrepreneurship should be easier for maximum job creation. L L L L L 50 L L L L L 100 100 = most free. PROPERTY RIGHTS — 30% Private property is subject to government expropriation and armed banditry. and agriculture support programs.1 percent of its total revenues from state-owned enterprises and government ownership of property.7 percent In 2002. who are appointed by the government. Government participation in the banking sector is strong. compared to the world average of 48 days. and close a business is seriously limited by the national regulatory environment. an additional 20 percent is deducted from Burundi’s trade freedom score to account for these non-tariff barriers. In the most recent year. but political instability continues to hinder. The overall freedom to start. Relatively high and unstable prices explain most of the monetary freedom score. Non-residents may hold foreign exchange accounts and withdraw funds up to a set limit upon presentation of documentation. Burundi’s continuing instability and massive.1 30 30 30 23 55. FREEDOM FROM GOVERNMENT — 60% Total government expenditures in Burundi. Residents may hold foreign exchange accounts. Burundi ranks 130th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. withdrawals over set limits require supporting documentation. Both obtaining a business license and closing a business are very difficult. 124 2007 Index of Economic Freedom . subsidies. direct investment.9 50. TRADE FREEDOM — 50. MONETARY FREEDOM — 68. and the government received 9. undeveloped financial sector that is dominated by banking. including credit operations. FISCAL FREEDOM — 80% Burundi has relatively high tax rates.2% The labor market operates under restrictive employment regulations that hinder employment and productivity growth. government spending equaled 39. including consumption and transfer payments. have generally proved to be strongly influenced by political pressure.9% Starting a business takes an average of 43 days. There were seven insurance firms in 2004. an additional 10 percent is deducted from Burundi’s monetary freedom score to adjust for measures that distort domestic prices. corrupt bureaucracy make it difficult to conduct entrepreneurial activities. Consequently. are subject to restrictions or authorization requirements.

which makes it the world’s 102nd freest economy.2 million Official Development Assistance: Multilateral: $169 million Bilateral: $324 million (15% from the U. tobacco. and trade freedom is not much better. Since the end of Cambodia’s civil war and the Khmer Rouge regime in 1991. Cambodia is ranked 18th out of 30 countries in the Asia–Pacific region.5% free 100 80 @ @@ @ @@ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @@ @ @ @ @ @ 60 @ @ @@ @@ @ @ 40 Asia Average = 59. and agriculture. rice. fish. Its overall score is 2. although the state receives a significant amount of its income from publicly owned businesses.org/index. and freedom from corruption all receive low scores. The economy is 56. machinery. construction materials. growth $2. ann. timber. Cambodia must foster a more transparent. gold. How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage.9% 5-yr. partially reflecting new methodological detail. Cambodia is still shaking off the legacy of a disastrous Communist history and therefore has significant areas of economic freedom that could be improved. rubber. according to our 2007 assessment. pharmaceutical products 125 . Weak rule of law in many areas leads to unreliable resolution of commercial disputes.5% (2000 estimate) Inflation (CPI): 3.7 percentage points lower than last year.7 billion Primarily petroleum products.423 per capita Unemployment: 2.4 billion 7. The country gained its independence in 1953 after nine decades of French colonial rule.2 billion Primarily clothing. tourism. Low income and corporate tax rates are complemented by a low level of government tax revenue. national strongman Hun Sen has held de facto power. and widespread corruption makes even simple regulations inconsistent.) External Debt: $3.6 20 0 1995 2007 QUICK FACTS Population: 13. cigarettes. BACKGROUND: Cambodia has experienced solid economic growth over the past three years without significant political liberalization. Cambodia scores well in fiscal freedom and freedom from government and moderately well in monetary freedom. A highly restrictive labor market makes it difficult for businesses to fill seasonal employment needs.5 percent free. To achieve its stated goal of 6 percent annual growth. property rights. and its overall score is slightly lower than the regional average. rules-based economic system to encourage business development and expansion beyond the current base of textiles.7% growth in 2004 6. Government spending is also low. motor vehicles. and the government’s repression of political opponents has damaged Cambodia’s international reputation.9% FDI (net inflow): $121.8 million GDP (PPP): $33.4 billion Exports: $3. footwear Imports: $3.CAMBODIA Rank: 102 Regional Rank: 18 of 30 C ambodia’s economy is 56. Business freedom. giving the country a high fiscal score despite some additional taxes.S.1 World Average = 60. comp.

rice mills. brick making. accountancy. which used to operate as a commercial bank as well as the central bank. an additional 20 percent is deducted from Cambodia’s trade freedom score to account for these nontariff barriers. There are no restrictions or controls on the holding of foreign exchange accounts by either residents or non-residents.2% Cambodia has low tax rates. construction. Consequently. The government has eliminated most non-tariff barriers to trade. In the most recent year.4 percent in 2003. The executive branch usually dominates the legislature and the judiciary. FREEDOM FROM CORRUPTION — 23% Corruption is perceived as widespread. and bureaucratic delays are commonplace. are low. government spending equaled 14. Transparency in the regulatory regime is very poor. and the government still must approve foreign direct investment. MONETARY FREEDOM — 81. Consequently.2 85. and foreign trade. and the government received 29.1 81. import licenses are required for firearms and pharmaceuticals.CAMBODIA’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 37. The National Bank of Cambodia. an additional 5 percent is deducted from Cambodia’s monetary freedom score to adjust for measures that distort domestic prices. In the most recent year. and arbitration.1 47.9 percent of GDP. FISCAL FREEDOM — 94.7 0 INVESTMENT FREEDOM — 50% The foreign investment regime is generally liberal. FINANCIAL FREEDOM — 50% Cambodia’s financial system is small.7% The labor market operates under relatively flexible employment regulations that could be improved to enhance employment and productivity growth. = world average BUSINESS FREEDOM — 37. and customs and regulation of trade are burdensome. Both obtaining a business license and closing a business are very difficult. broadcasting.2 94. gemstone exploitation. and silk weaving.1 percent of its total revenues from state-owned enterprises and government ownership of property. although certain sectors face restriction. and timber. PROPERTY RIGHTS — 30% Cambodia’s legal system does not protect private property effectively and contains many gaps in company law. The market determines most prices. Other taxes include a value-added tax (VAT) and a tax on interest.1% Total government expenditures in Cambodia. However. as well as publishing.1 50 50 30 23 67. printing. FREEDOM FROM GOVERNMENT — 85. most property owners do not have documentation to prove their ownership. operate. Non-residents may not own land. rubber. The overall freedom to start. The government has pursued privatization and consolidation since 2000. Entrepreneurship should be easier for maximum job creation. export licenses are required for antiquities. TRADE FREEDOM — 47. 126 2007 Index of Economic Freedom . wood and stone carving manufacture. overall tax revenue as a percentage of GDP was 8 percent. The non-salary cost of employing a worker is low. and close a business is significantly limited by the national regulatory environment. The formal labor market is not fully developed. compared to the world average of 48 days. L L L L L 50 L L L L L 100 100 = most free. bankruptcy. averaging 4. underdeveloped. and the rigid labor market runs the risk of creating an arbitrary dual labor market. is now solely a regulatory and supervisory agency. There are frequent problems with inconsistent judicial rulings as well as outright corruption. All 15 commercial banks are private except the Foreign Trade Bank of Cambodia and the Rural Development Bank.1% Inflation in Cambodia is moderate. and certain areas of transport. but the government attempts to maintain stable retail prices for fuel through subsidies. Foreign-owned hospitals may not employ non-Cambodian doctors if the Ministry of Health considers that there is an adequate number of Cambodian practitioners. A state-owned firm dominates the insurance sector. The land titling system is not fully functional. but dismissing a redundant employee is relatively costly. LABOR FREEDOM — 67. Cambodia ranks 130th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. There is no stock market.8 percent between 2003 and 2005. including consumption and transfer payments. and subject to government influence. including law. Much credit is in the informal sector.1% Starting a business takes an average of 86 days.2% Cambodia’s weighted average tariff rate was a relatively high 16. Relatively moderate and unstable prices explain most of the monetary freedom score. Both the top income tax rate and the top corporate tax rate are 20 percent.

org/index. Ongoing problems include bureaucracy. although the government has promised reforms. hinders foreign investment and economic growth. comp. neither property rights nor justice in the courts can be guaranteed. A majority of the population is rural.7 billion (2004 estimate) Primarily crude oil and petroleum products. Cameroon faces problems similar to those faced by other developing African nations. Government expenditures are also relatively low.6% growth in 2004 4. cocoa beans.3% FDI (net inflow): $0.4 percent free. which needs to proceed more extensively.5 billion (2004 estimate) Primarily machinery. but total tax revenue is relatively small as a percentage of GDP.CAMEROON Rank: 117 Regional Rank: 22 of 40 C ameroon’s economy is 54. and its overall score is equal to the regional average. Cameroon scores well in freedom from government and somewhat well in fiscal freedom.3 million (gross) Official Development Assistance: Multilateral: $235 million Bilateral: $717 million (2% from the U. 127 .7 World Average = 60. food How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. Both the top income tax rate and the top corporate tax rate are 38.) External Debt: $9. electrical equipment. an unreliable legal system. lumber. BACKGROUND: Cameroon is a multi-party democracy under President Paul Biya. ann. Business licenses are difficult to obtain. and firing a worker is difficult. fuel.5 percent. which makes it the world’s 117th freest economy. Because corruption is extensive and the rule of law is weak.4% free 100 80 Sub-Saharan Africa Average = 54.5 billion Exports: $2.3 percentage point higher than last year. including state ownership of utilities and industries and onerous regulation. coffee.S. transport equipment. according to our 2007 assessment. widespread corruption. Cameroon is ranked 22nd out of 40 countries in the sub-Saharan Africa region. Per capita income is relatively high for sub-Saharan Africa but is supported by declining oil production and exports of commodities that are subject to volatile shifts in world prices.9 billion 3. aluminum. Economic development has been spurred by privatization. cotton Imports: $2. who has been in office since 1982. The economy is 54.1% 5-yr.174 per capita Unemployment: 17. and agriculture accounts for over 40 percent of GDP. Employment regulations are costly and restrictive. growth $2.6 @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @@ @ @ @ 60 40 20 0 1995 2007 QUICK FACTS Population: 16 million GDP (PPP): $34. and Cameroon’s inadequate and poorly maintained infrastructure.0% (2006 estimate) Inflation (CPI): 0. Foreign investment remains heavily restricted. Government intervention in the economy. partially reflecting new methodological detail. Its overall score is 0.

Cameroon passed an investment charter to improve its difficult investment environment. Regulations are applied unevenly and impose a substantial burden on businesses. These countries share a common central bank and a common currency pegged to the euro. Cameroon is a member of the Central African Economic and Monetary Community along with five other countries. Microfinance is increasing. an additional 20 percent is deducted from Cameroon’s trade freedom score to account for these nontariff barriers. Residents may open foreign exchange accounts with prior approval of the central bank and the Ministry of Finance and Budget. = world average BUSINESS FREEDOM — 41% Starting a business takes an average of 37 days.CAMEROON’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 41 50 79. with four companies accounting for about 60 percent of the market. Obtaining a business license can be very difficult. FREEDOM FROM CORRUPTION — 22% Corruption is perceived as widespread. regulations to implement this charter will not be fully in place until 2007 because of delays in drafting them. FINANCIAL FREEDOM — 60% Cameroon’s financial sector is small and dominated by banking. and the government received 22. should improve general governance and efforts to fight corruption. the government has expanded excise taxes. averaging 1. including foreign borrowing. an additional 15 percent is deducted from Cameroon’s monetary freedom score to adjust for measures that distort domestic prices. Privatization has been one of the pillars of economic reform.7 percent of its total revenues from state-owned enterprises and government ownership of property. are subject to controls and generally require approval of or declaration to the government. pharmaceuticals.5 percent. The first stock exchange was founded in 2003.5 percent between 2003 and 2005. However. Both the top income tax rate and the top corporate tax rate are 38. The overall freedom to start. Customs fraud and protracted negotiations with customs officers over the value of imported goods are common. Despite an overall legal framework for the emergence of an efficient labor market. Labor legislation mandates retraining or replacement before firing a worker. such a market has not emerged. Consequently. FISCAL FREEDOM — 79. established by the National Assembly in April 2004. Other taxes include a value-added tax (VAT). The banking sector is private and consists of 10 commercial banks. discouraging lending. Relatively low and stable prices explain most of the monetary freedom score. The most recent data show that government spending equaled 15. PROPERTY RIGHTS — 30% Corruption and an uncertain legal environment can lead to confiscation of private property. controls. MONETARY FREEDOM — 77. The insurance sector is also concentrated. water. The government-owned Postal Savings Bank became insolvent in 2004 and is being reformed. are low. Most capital transactions. import bans. operate. L L L L L L L L L L 50 100 INVESTMENT FREEDOM — 50% In March 2002. telecommunications. increased the property tax. but dismissing a redundant employee is relatively costless. The non-salary cost of employing a worker can be high. In recent years. FREEDOM FROM GOVERNMENT — 86. cooking gas. including electricity. Cameroon ranks 137th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. but its first listing was not until 2006. foreign direct investment.6 0 goods and services. and cotton. Entrepreneurship should be easier for maximum job creation. compared to the world average of 48 days. Outdated bankruptcy laws favor debtors.5 77. The enforcement of judicial decisions is subject to administrative and legal bottlenecks. with three banks controlling 60 percent of assets. The market determines most prices. LABOR FREEDOM — 47. 100 = most free. TRADE FREEDOM — 50% Cameroon’s weighted average tariff rate was 15 percent in 2002.4 50 60 30 22 47. and modified forestry taxation in an effort to reduce the potential for fraud.3 percent. Some capital transfers are subject to requirements. and issues involving the enforcement and protection of intellectual property rights. and closing a business is difficult.5% Cameroon’s total government expenditures. Obtaining government approval after incorporation can involve a series of agencies. petroleum products. and close a business is seriously limited by the national regulatory environment. In the most recent year.4% Inflation in Cameroon is low. Consequently.7% Cameroon has high tax rates.7 86. and authorization. It also is highly concentrated. Non-tariff barriers include surcharges on certain imports. but the government controls prices for “strategic” 128 2007 Index of Economic Freedom . Some foreign companies have alleged that judgments against them were obtained fraudulently or through frivolous lawsuits.9 percent of GDP. The Constitutional Council.6% The labor market operates under highly restrictive employment regulations that hinder employment and productivity growth. including consumption and transfer payments. but progress has been sluggish. and foreign securities. overall tax revenue as a percentage of GDP was 9.

comp. Opening a business is fast and painless. mining. aircraft.7 billion Primarily machinery and equipment. thanks to oil and mineral exports. and its overall score is well above the regional average. and fishing. Despite maintaining one of the Organisation for Economic Co-operation and Development’s most restrictive foreign ownership policies in telecommunications.6 billion Primarily motor vehicles and parts. macroeconomic fundamentals remain strong. electricity. is becoming more open to foreign capital as the government loosens restrictions. as are the top commercial and income tax rates. As in many European democracies.8 billion (2005) Exports: $377. motor vehicles and parts. The banking sector. however. government spending is high because Canada maintains elaborate social programs and a welfare state.2% Inflation (CPI): 1. which makes it the world’s 10th freest economy. and foreign investment in several areas of the economy is heavily restricted. and closing one is equally simple.263 per capita Unemployment: 7. Canada is ranked 2nd out of 29 countries in the Americas. A strong rule of law ensures property rights. publishing. industrial machinery. a low level of corruption. wood pulp. durable consumer goods 129 How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. broadcasting. It enjoys a large trade surplus.7 percent free. crude oil. freedom from government scores comparatively poorly. property rights. Canada scores well in business freedom.org/index. Inflation of consumer prices is low.8% FDI (net inflow): –$41. fertilizers. chemicals. As a developed Western democracy. according to our 2007 assessment. its economy tends to track that of its larger southern neighbor. telecommunications equipment. chemicals. Its overall score is unchanged from last year. Regulation of foreign investment discourages liquid capital transfers. aviation. ann. and transparent application of the country’s admittedly thorough commercial code. BACKGROUND: Canada is one of the world’s leading freemarket democracies. labor freedom. The economy is 78.6 billion 2. and fiscal freedom.7% free 100 80 @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ 60 @ @ @ @ @ @ @@ 40 Americas Average = 62. . On the other hand. timber Imports: $336. plastics. A protracted dispute with the United States over softwood lumber was settled in 2005. growth $31.6 20 0 1995 2007 QUICK FACTS Population: 32 million GDP (PPP): $999. and unemployment is at a 30-year low.2 billion Official Development Assistance: Multilateral: None Bilateral: None External Debt: $439. Because of its bilateral trade relationship with the United States.9% growth in 2004 3.CANADA Rank: 10 Regional Rank: 2 of 29 C anada’s economy is 78.0% 5-yr.3 World Average = 60.

and poultry and restricts access to the telecommunications and media sectors. The labor law does not mandate retraining or replacement before firing a worker. Canada ranks 14th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. energy monopolies. newspapers. = world average BUSINESS FREEDOM — 96% Starting a business takes an average of three days. The regulatory system is thorough but essentially transparent. In the most recent year. Investment Canada. 100 = most free.9% Canada has a moderate income tax rate and a moderate corporate tax rate.2 percent between 2003 and 2005.9 percent of GDP. L L L L L L L L L L 50 100 INVESTMENT FREEDOM — 60% The government regulates foreign investment. and close a business is strongly protected by the national regulatory environment. whether through a new venture or through an acquisition. The six large domestic banks that dominate the sector controlled over 90 percent of banking assets in 2005. and the top corporate tax rate is 22. and air transport. including consumption and transfer payments. and closing a business is very easy. Entrepreneurship should be easier for maximum job creation. The market determines most prices. The government owns the Business Development Bank.9 percent in 2005. government spending equaled 39. Canada closely restricts imports of certain domestic “supply managed” agricultural products such as dairy products. must approve direct foreign investments. LABOR FREEDOM — 82.9 61. sound financial system. eggs. Corruption is perceived as minimal. The judiciary is independent. FREEDOM FROM CORRUPTION — 84% FISCAL FREEDOM — 83. Other taxes include a value-added tax (VAT).2 83. are high. The 50 foreign banks operating in Canada in 2006 accounted for a very small portion of sector assets. compared to the world average of 48 days. banking and insurance. A federal agency. However. but the government regulates the prices of some utilities and subsidizes and controls prices 130 2007 Index of Economic Freedom . The top income tax rate is 29 percent. or access to foreign exchange. Relatively low and stable prices explain most of the monetary freedom score. giving them more freedom to offer financial services. the government maintains some non-tariff barriers. Securities markets are well developed. PROPERTY RIGHTS — 90% Private property is well protected in Canada. Mergers between large banks are restricted. and large banks are not permitted to buy large insurance companies. Consequently.2% Canada’s weighted average tariff rate was a low 0. an additional 20 percent is deducted from Canada’s trade freedom score to account for these non-tariff barriers.CANADA’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 96 78. that impede access to the Canadian market. operate. The overall freedom to start. at both the federal and provincial levels. Issues involving the enforcement and protection of intellectual property rights also contribute to the cost of trade. TRADE FREEDOM — 78. an additional 10 percent is deducted from Canada’s monetary freedom score to adjust for measures that distort domestic prices. MONETARY FREEDOM — 80. and a property tax. Obtaining a business license is simple.7% The labor market operates under flexible employment regulations that enhance employment and productivity growth. In the most recent year. Canada’s labor market flexibility is one of the 20 highest in the world.6% Inflation in Canada is low.6 60 70 90 84 82. Banks are permitted to open their own insurance subsidiaries but may not sell policies in their bank branches. and bribery and other forms of corruption are rare. There are no restrictions on current transfers. Consequently. which makes loans to the small and medium enterprise sector. repatriation of profits.1 percent of its total revenues from state-owned enterprises and government ownership of property. averaging 2. Restricted sectors include broadcasting and telecommunications. The government has loosened restrictions on financial institutions.1 percent. and dismissing a redundant employee is relatively costless. book publishing.7 0 for some agricultural sectors. and the government received 3. FREEDOM FROM GOVERNMENT — 61. filmmaking and distribution. FINANCIAL FREEDOM — 70% Canada has a strong. Judges and civil servants are generally honest. a tax on insurance contracts. The non-salary cost of employing a worker is moderate.8% Total government expenditures.8 80. purchase of real estate. overall tax revenue as a percentage of GDP was 33 percent.

Cape Verde is ranked 10th out of 40 countries in the sub-Saharan Africa region. The currency is pegged to the euro.2 million Primarily food. and bureaucracy makes business operations difficult.5 million (gross) Official Development Assistance: Multilateral: $54 million Bilateral: $97 million (7% from the U. which makes it the world’s 88th freest economy. Its overall score is 1. The economy is dominated by services. and business and financial freedoms are not much better.9 million Primarily fuel. partially reflecting new methodological detail.7 World Average = 60.5 million GDP (PPP): $2. shoes. ann. The economy is 58. 131 . comp. according to our 2007 assessment.4% free 100 80 Sub-Saharan Africa Average = 54. hides Imports: $547. growth $5. and government expenditures are correspondingly moderate.6 @ @ @ @ @ @ @ @ @ @ @ @ @@ @ @ @ @ @ @@ @ @ @ @@ @ @ @ @ @ @@ @ @ 60 40 20 0 1995 2007 QUICK FACTS Population: 0.727 per capita Unemployment: 16% (2002 estimate) Inflation (CPI): –1. Corruption inhibits economic development. although the government does subsidize some staples. Many Cape Verdeans live abroad.8 percentage points lower than last year. Economic growth through market liberalization. BACKGROUND: Cape Verde is a stable multi-party parliamentary democracy with few natural resources. industrial products. and serious water shortages. which is high by sub-Saharan African standards. fish. good governance. The top income and corporate tax rates are high. property rights. Its trade freedom and freedom from corruption are particularly weak. transport equipment. but manufacturing. frequent droughts. Property rights are fairly well secured by the rule of law in comparison to the situation in neighboring countries. fuels How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. garments.CAPE VERDE Rank: 88 Regional Rank: 10 of 40 C ape Verde’s economy is 58.8 billion 4.9% FDI (net inflow): $20.) External Debt: $325. and judicious public investment has earned Cape Verde middle-income status. Cape Verde has close economic and political ties to the European Union and is seeking EU associate status.4% growth in 2004 5. Cape Verde scores well in freedom from government. agriculture.0 million (2002) Exports: $276.4 percent free. Cape Verde faces serious challenges. Inflation is low.org/index. Trade is hindered by a high average tariff rate and significant non-tariff barriers. and fishing employ most of the work force. and monetary freedom.5% 5-yr. and remittances contribute significantly to GDP.S. and its overall score is slightly higher than the regional average. but total tax revenue is relatively small as a percentage of GDP.

CAPE VERDE’S TEN ECONOMIC FREEDOMS
Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 50.5 31.2 78 77.7 84.2 50 50 70 30 62.5
0

INVESTMENT FREEDOM — 50%
The government encourages foreign investment, particularly in tourism, fishing, light manufacturing, communications, and transportation. It has simplified the registration process and has opened privatization to foreign investors, although shares are reserved for Cape Verdean investors. All sectors of the economy are now open. Both residents and non-residents may hold foreign exchange accounts, subject to government approval and regulations. Most payments and transfers are subject to controls. Real estate transactions require central bank approval. While most capital transactions are permitted, most are also subject to advance approval by the central bank.
L L L

L L
50

L L L L L
100

100 = most free,

= world average

BUSINESS FREEDOM — 50.5%
Starting a business takes an average of 52 days, compared to the world average of 48 days. Entrepreneurship should be easier for maximum job creation. In recent years, government has made efforts to streamline the cumbersome bureaucracy and increase transparency, but obtaining a business license can still be still difficult, and closing a business is likewise difficult. The overall freedom to start, operate, and close a business is restrained by the national regulatory environment.

FINANCIAL FREEDOM — 50%
Cape Verde has a small financial sector. Banking reform initiated in the 1990s led to privatization of the two largest commercial banks, Comercial do Atlântico and Caixa Económica de Cabo Verde, although the government retains a large minority stake in Caixa Económica de Cabo Verde. There has been a significant improvement in the non-performing loan ratio. In addition, Cape Verde has a Portuguese bank, a West African bank, and a private domestic bank with Portuguese participation. The sector remains highly concentrated, with the two largest banks controlling 89 percent of banking assets. The government remains active in the banking sector through financial institutions that handle public investment and international aid. There are two insurance companies and two state-run pension funds. The stock market, founded in 1999, has been largely inactive.

TRADE FREEDOM — 31.2%
Cape Verde’s average tariff rate was a high 24.4 percent in 2003. Import taxes and sanitary and phytosanitary restrictions also increase the cost of trade. Consequently, an additional 20 percent is deducted from Cape Verde’s trade freedom score to account for these non-tariff barriers.

FISCAL FREEDOM — 78%
Cape Verde has a high income tax rate and a moderate corporate tax rate. The top income tax rate is 45 percent, and the top corporate tax rate is 30 percent. Other taxes include a value-added tax (VAT) and a special consumption tax. In the most recent year, tax revenue as a percentage of GDP was 19.3 percent.

PROPERTY RIGHTS — 70%
Private property is fairly well protected in Cape Verde. The Constitution provides for an independent judiciary, and the government generally respects this provision. However, the judiciary is understaffed and inefficient. In general, due process is provided, although the right to an expeditious trial is constrained by a seriously overburdened and understaffed judicial system. A backlog of cases routinely leads to trial delays of six months or more.

FREEDOM FROM GOVERNMENT — 77.7%
Total government expenditures in Cape Verde, including consumption and transfer payments, are moderate. In the most recent year, government spending equaled 30.6 percent of GDP, and the government received 1.4 percent of its total revenues from state-owned enterprises and government ownership of property.

FREEDOM FROM CORRUPTION — 30%
To overcome the lack of resources in Cape Verde, the poor turn to migration and the informal sector. In urban areas, informal activities are the only source of income for many families. It is estimated that informal employment accounts for about 40 percent of total employment.

MONETARY FREEDOM — 84.2%
The average rate of inflation in Cape Verde was –0.8 percent between 2003 and 2005. Relatively stable prices explain most of the monetary freedom score. The market determines most prices, but the government maintains price controls for water and electricity and regulates some other prices, including those for petroleum products and basic food items. Consequently, an additional 10 percent is deducted from Cape Verde’s monetary freedom score.

LABOR FREEDOM — 62.5%
The labor market operates under restrictive employment regulations that could be improved to enhance employment and productivity growth. The non-salary cost of employing a worker is high, and dismissing a redundant employee is relatively costly. The labor laws were revised recently to make labor contracts more flexible. There is no private-sector minimum wage, but most private-sector wages are linked to those of equivalent civil servants.

132

2007 Index of Economic Freedom

CENTRAL AFRICAN REPUBLIC
Rank: 137 Regional Rank: 32 of 40

T

he Central African Republic’s economy is 50.3 percent free, according to our 2007 assessment, which makes it the world’s 137th freest economy. Its overall score is 4.5 percentage points lower than last year, partially reflecting new methodological detail. The Central African Republic is ranked 32nd out of 40 countries in the sub-Saharan Africa region, and its overall score is lower than the regional average. The Central African Republic scores well in freedom from government and monetary freedom. Government expenditures are low, and state-owned businesses do not account for an exceptionally large amount of revenue. Tax revenue is not high as a percentage of GDP, but tax rates are high. Inflation is low, but the government interferes extensively with market prices. Business freedom, trade freedom, financial freedom, property rights, and freedom from corruption are weak. Regulatory procedures are burdensome, and business operations tend to be significantly hampered by the government. Labor laws are restrictive, imposing exceptionally high costs on employers. The banking system is subject to political pressure, as is the rule of law. Property rights cannot be guaranteed, and corruption is rampant. BACKGROUND: The Central African Republic is very poor and has been politically unstable ever since gaining its independence in 1960. A civilian government established in 1993 was overthrown in 2003 by General Francois Bozize. Despite pledging not to run, Bozize won the 2005 presidential election. The incidence of HIV/AIDS infection is high. Most of the population is engaged in subsistence farming, and agriculture comprises over half of GDP. Mineral resources, aside from diamonds, remain undeveloped. Infrastructure is poor, institutions are weak, and corruption is prevalent, although initial steps have been taken to standardize and simplify the labor and investment codes.

The economy is 50.3% free
100

80

Sub-Saharan Africa Average = 54.7 World Average = 60.6
@ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @@ @ @@ @@ @ @ @ @ @ @ @ @

60

40

20

0

1995

2007

QUICK FACTS
Population: 4 million GDP (PPP): $4.4 billion 1.3% growth in 2004 –1.0% 5-yr. comp. ann. growth $1,094 per capita Unemployment: 8.0% (2001 estimate) Inflation (CPI): –2.2% FDI (net inflow): –$12.7 million (gross) Official Development Assistance: Multilateral: $52 million Bilateral: $61 million (20% from the U.S.) External Debt: $1.1 billion Exports: $100.4 million (2004 estimate) Primarily diamonds, timber, cotton, coffee, tobacco Imports: $158.2 million (2004 estimate) Primarily food, textiles, petroleum products, machinery, electrical equipment, motor vehicles, chemicals, pharmaceuticals

How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage.org/index.

133

CENT. AFRICAN REP.’S TEN ECONOMIC FREEDOMS
Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 38.9 44.2 77.1 90.2 76.4 40 40 20 30 45.9
0

INVESTMENT FREEDOM — 40%
Banditry and extortion are major obstacles to foreign investment. Foreign investment must be declared to the Ministry for the Economy, Finance, Planning and International Cooperation. Capital transfers and transactions are subject to exchange controls. Residents may hold foreign exchange accounts. All capital transactions, transfers, and payments to countries other than France, Monaco, members of the West African Economic and Monetary Union (WAEMU), members of the Central African Economic and Monetary Community (CEMAC), and Comoros are subject to government approval and some reporting requirements. Sale or issue of capital market securities and commercial credits requires government approval.

L L L L L L L L L L
50 100

100 = most free,

= world average

BUSINESS FREEDOM — 38.9%
Starting a business takes an average of 14 days, compared to the world average of 48 days. Entrepreneurship should be easier for maximum job creation. Obtaining a business license is difficult, and closing a business can be very difficult. The overall freedom to start, operate, and close a business is seriously limited by the national regulatory environment.

FINANCIAL FREEDOM — 40%
The Central African Republic’s financial sector is underdeveloped. CEMAC countries share a common central bank and a common currency pegged to the euro. In addition to a branch of the regional central bank, there are three commercial banks, a microfinance institution, and two postal financial institutions. The government has privatized the two largest commercial banks, Banque Internationale pour le Centrafrique and Commercial Bank Centrafrique, but still partially owns the Banque Populaire Marocco-Centrafricaine. The banking sector is used as a source of financing for government expenditures, and the accumulation of state debt has undermined the soundness of the banking system. There are two insurance companies. There is no stock market.

TRADE FREEDOM — 44.2%
The Central African Republic’s weighted average tariff rate was a high 17.9 percent in 2002. The government subjects imports from third countries to discriminatory treatment by attributing imported goods to categories for which a higher duty rate applies, and customs fraud and inefficiency is a major problem. Consequently, an additional 20 percent is deducted from the Central African Republic’s trade freedom score to account for these non-tariff barriers.

PROPERTY RIGHTS — 20% FISCAL FREEDOM — 77.1%
The Central African Republic has high tax rates. The top income tax rate is 50 percent, and the top corporate tax rate is 30 percent. Other taxes include a value-added tax (VAT) and a tax on check transactions. In the most recent year, overall tax revenue as a percentage of GDP was 6.5 percent. Protection of property rights is weak. The constitution has been suspended, and the judiciary is subject to executive interference. Judges are appointed by the president. The courts barely function because of inefficient administration, a shortage of trained personnel, growing salary arrears, and a lack of material resources. The police and the judiciary are among the most corrupt institutions in the country.

FREEDOM FROM GOVERNMENT — 90.2%
Total government expenditures in the Central African Republic, including consumption and transfer payments, are very low. In the most recent year, government spending equaled 13.7 percent of GDP, and the government received 16.3 percent of its total revenues from state-owned enterprises and government ownership of property.

FREEDOM FROM CORRUPTION — 30%
Informal market activity and smuggling, especially in the diamond industry, is extensive. The formal sector has contracted greatly because of extensive regulations and corruption. A significant part of the population works informally.

MONETARY FREEDOM — 76.4%
Inflation in the Central African Republic is low, averaging 1.9 percent between 2003 and 2005. Relatively stable prices explain most of the monetary freedom score. The government influences most prices through the large public sector, subsidies, and direct price controls. Consequently, an additional 15 percent is deducted from the Central African Republic’s monetary freedom score to adjust for measures that distort domestic prices.

LABOR FREEDOM — 45.9%
The labor market operates under highly restrictive employment regulations that hinder employment and productivity growth. The non-salary cost of employing a worker is high, and dismissing a redundant employee can be difficult. Regulations on increasing or contracting the number of work hours are rigid. The Central African Republic’s labor freedom is one of the 20 lowest in the world.

134

2007 Index of Economic Freedom

CHAD
Rank: 147 Regional Rank: 36 of 40

C

had’s economy is 46.4 percent free, according to our 2007 assessment, which makes it the world’s 147th freest economy. Its overall score is 3 percentage points lower than last year, partially reflecting new methodological detail. Chad is ranked 36th out of 40 countries in the subSaharan Africa region, and its overall score is lower than the regional average. Chad scores moderately well in freedom from government and monetary freedom. Government spending as a percentage of GDP is relatively low, although the government receives substantial revenue from state-owned enterprises (mainly the oil sector). Inflation is low, but the government does intervene somewhat in the prices of certain goods. Chad faces significant political and economic hurdles. It receives very low ratings in business freedom, fiscal freedom, property rights, freedom from corruption, and labor freedom. Starting a business takes over two months, and both licensing and closing a business are time-consuming and costly, reflecting a tedious regulatory environment. Nowhere is this more apparent than in employment, where inflexibility makes Chad one of the world’s most restrictive labor markets. Weak rule of law means that property rights and regulations are rarely observed, and corruption is endemic. BACKGROUND: Chad remains politically unstable and one of the world’s 10 poorest countries. President Idriss Deby seized power in 1991 and won elections in 1996, 2001, and 2006. Eighty percent of the population is engaged in subsistence agriculture, herding, and fishing. Corruption, poor infrastructure, and lack of administrative and judicial reform undermine the business climate. Oil exports have increased growth in recent years, but violation of an agreement with the World Bank to set aside oil revenues for health, education, agriculture, and infrastructure led the Bank to suspend disbursement of loans, and negotiations are underway to resolve the dispute.

The economy is 46.4% free
100

80

Sub-Saharan Africa Average = 54.7 World Average = 60.6
@ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @

60

40

20

0

1995

2007

QUICK FACTS
Population: 9.5 million GDP (PPP): $19.7 billion 29.5% growth in 2004 12.1% 5-yr. comp. ann. growth $2,090 per capita Unemployment: n/a Inflation (CPI): –5.4% FDI (net inflow): $478.2 million (gross) Official Development Assistance: Multilateral: $181 million Bilateral: $173 million (27% from the U.S.) External Debt: $1.7 billion Exports: $1.4 billion (2004 estimate) Primarily cotton, cattle, gum arabic, oil Imports: $933.4 million (2004 estimate) Primarily machinery and transportation equipment, industrial goods, food, textiles

How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage.org/index.

135

CHAD’S TEN ECONOMIC FREEDOMS
Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 25.1 54.2 57.7 81.9 77.7 40 50 20 17 40.2
0

50

100

100 = most free,

= world average

BUSINESS FREEDOM — 25.1%
Starting a business takes an average of 75 days, compared to the world average of 48 days. Entrepreneurship should be easier for maximum job creation. Both obtaining a business license and closing a business are very difficult. Bureaucratic procedures are often burdensome and slow. Clear rules exist, but they are not always observed. The overall freedom to start, operate, and close a business is seriously limited by the national regulatory environment.

equal treatment to foreign investors, but they must satisfy several bureaucratic requirements, including a review and approval by the Ministry of Commerce. Foreign investments in cotton, electricity, and telecommunications are restricted to protect state-owned enterprises. The main constraints on investment are limited infrastructure, chronic energy shortages, high energy costs, a scarcity of skilled labor, a high tax burden, and corruption. Both residents and non-residents may hold foreign exchange accounts with government approval. Capital transactions, payments, and transfers to France, Monaco, members of the Central African Economic and Monetary Community (CEMAC), members of the West African Economic and Monetary Union, and Comoros are permitted freely and subject to controls to other countries.

L L L L L L L L L L

FINANCIAL FREEDOM — 50%
Chad’s financial sector is small, underdeveloped, and historically hindered by instability. Chad is a member of the Central African Economic and Monetary Community along with five other countries. These countries share a common central bank and a common currency pegged to the euro. Privatization of the banking sector was completed in the 1990s. There are seven banks. However, banking is weak, especially outside of the three main urban areas, and informal financial services are common. Supervision and regulation of the financial system is insufficient. The government has encouraged lending to CotonTchad to finance restructuring of the cotton sector. The insurance sector is small and dominated by the formerly state-owned Star Nationale. A French insurer entered the market after oil production began. There is no capital or money market, and sophisticated financial instruments are unavailable.

TRADE FREEDOM — 54.2%
Chad’s weighted average tariff rate was 12.9 percent in 2002. Pervasive smuggling, corruption, bureaucracy, and red tape impede trade. Consequently, an additional 20 percent is deducted from Chad’s trade freedom score to account for these non-tariff barriers.

FISCAL FREEDOM — 57.7%
Chad has very high tax rates. The top income tax rate is 65 percent, and the top corporate tax rate is 45 percent. Other taxes include a value-added tax (VAT) and an apprenticeship tax. In the most recent year, overall tax revenue as a percentage of GDP was 9.4 percent.

PROPERTY RIGHTS — 20%
Protection of private property is weak. There is a widespread perception that the courts should be avoided at all costs, so most disputes are settled privately. Chad’s judiciary is easily influenced by the executive branch. Because magistrates are appointed by presidential decree with no legislative oversight, the careers of magistrates, judges, clerks, and other judicial agents depend on the presidency and the Ministry of Justice. Corruption is a serious problem.

FREEDOM FROM GOVERNMENT — 81.9%
Total government expenditures in Chad, including consumption and transfer payments, are low. In the most recent year, government spending equaled 17.1 percent of GDP, and the government received 33.8 percent of its total revenues from state-owned enterprises and government ownership of property. Progress in privatization of the non-oil sector has been slow.

FREEDOM FROM CORRUPTION — 17% MONETARY FREEDOM — 77.7%
Inflation in Chad is moderate, averaging 3.8 percent between 2003 and 2005. Relatively moderate and unstable prices explain most of the monetary freedom score. Most prices are determined in the market, but the government influences the prices of important goods and services, such as cotton, telecommunications, and energy. Consequently, an additional 10 percent is deducted from Chad’s monetary freedom score to adjust for measures that distort domestic prices. Corruption is perceived as widespread. Chad ranks last in Transparency International’s Corruption Perceptions Index for 2005.

LABOR FREEDOM — 40.2%
The labor market operates under highly restrictive employment regulations that hinder employment and productivity growth. The non-salary cost of employing a worker is high, and dismissing a redundant employee is relatively costly. Restrictive labor laws and legal uncertainty discourage investment. Chad’s labor market flexibility is one of the 20 lowest in the world.

INVESTMENT FREEDOM — 40%
Chad places no limits on foreign ownership and provides

136

2007 Index of Economic Freedom

CHILE
Rank: 11 Regional Rank: 3 of 29

C

hile’s economy is 78.3 percent free, according to our 2007 assessment, which makes it the world’s 11th freest economy. Its overall score is 2.9 percentage points lower than last year, partially reflecting new methodological detail. Chile is ranked 3rd out of 29 countries in the Americas and has been a regional leader for over a decade. Chile is a regional economic power and receives good scores in virtually all areas of economic freedom. Scores in fiscal freedom, freedom from government, monetary freedom, property rights, and labor freedom are particularly high. Despite high income taxes, corporate tax rates are an extremely low 17 percent. Total government spending as a proportion of GDP is also moderate. Inflation is low, but the state maintains certain price controls. The rule of law is transparent and fair. Though its overall record is impressive, Chile could improve in business freedom and trade freedom. Bankruptcy procedures can be cumbersome, although regulatory licensing is easy. Non-tariff barriers are also a problem, as the government restricts certain imports. BACKGROUND: Chile is richly endowed with natural resources and is now the world’s leading producer of copper. Tourism and a strong export sector have increasingly been the main engines of growth. Chile has been governed since 1990 by a center-left coalition. Michele Bachelet, a member of the Socialist Party—one of the governing coalition parties—won the presidential elections in January 2006. Her government remains committed to Chile’s successful free-market institutions. As of this writing, a free trade agreement with China, signed in November 2005, awaits congressional ratification. Chile is also engaged in negotiations on possible trade agreements with India and Japan.

The economy is 78.3% free
100
@ @ @ @ @

80
@ @ @ @ @ @ @ @ @ @ @ @

@ @

@

@

60

@ @ @

@ @ @

@ @ @

@ @ @

@ @

@ @ @@

40
Americas Average = 62.3 World Average = 60.6

20

0

1995

2007

QUICK FACTS
Population: 16.1 million GDP (PPP): $175.3 billion 6.1% growth in 2004 4.0% 5-yr. comp. ann. growth $10,874 per capita Unemployment: 8.8% Inflation (CPI): 1.1% FDI (net inflow): $6.7 billion Official Development Assistance: Multilateral: $25 million Bilateral: $82 million (2% from the U.S.) External Debt: $44.1 billion Exports: $38.0 billion Primarily machinery and transportation equipment, industrial goods, food, textiles Imports: $29.5 billion Primarily petroleum and petroleum products, chemicals, electrical and telecommunications equipment, industrial machinery, vehicles, natural gas

How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage.org/index.

137

CHILE’S TEN ECONOMIC FREEDOMS
Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 68.9 72.4 85.7 87.6 79.9 70 70 90 73 85.3
0

INVESTMENT FREEDOM — 70%
Foreign and domestic investments receive equal treatment, and there are no restrictions on repatriation. Some restrictions apply for foreign ownership of local enterprises and joint ventures in the petroleum industry, uranium mining and other specialty mineral resources, communications, shipping, and fishing. In recent years, the authorities have lifted all remaining exchange controls, eliminated the minimum stay period on foreign investments, and eased procedures for placements in local capital markets. Both residents and non-residents may hold foreign exchange accounts. There are no controls on current transfers and capital transactions, but some restrictions apply.
L L L L L L L L

L L
50 100

100 = most free,

= world average

BUSINESS FREEDOM — 68.9%
Starting a business takes an average of 27 days, compared to the world average of 48 days. Entrepreneurship should be easier for maximum job creation. Obtaining a business license is relatively simple, but closing a business can be difficult. The time and cost of going through bankruptcy can be burdensome. The overall freedom to start, operate, and close a business is relatively well protected by the national regulatory environment.

FINANCIAL FREEDOM — 70%
Chile’s financial system is among the strongest and most developed among all emerging markets. The banking system is efficient and well supervised. There are strict limits on lending to a single debtor or group of related companies. There are 14 domestic banks and 12 foreign banks. Foreign banks controlled 39 percent of assets in 2005. The state-owned Banco Estado is the nation’s third largest, accounting for about 13 percent of banking assets. A series of laws have substantially widened the range of operations in which banks and other financial services may engage and have streamlined and regularized the regulation of capital and credit markets. Chile’s advanced private pension system has been a model for other countries and an important source of investment capital. Foreign banking and insurance companies are treated the same as domestic companies. The insurance sector is large and diverse, with over 50 insurance companies offering a variety of services. Chile’s liberal capital market is the largest in Latin America as a proportion of GDP.

TRADE FREEDOM — 72.4%
Chile’s weighted average tariff rate was 3.8 percent in 2004. Chile generally has few non-tariff barriers to imports, but imports of agricultural products and processed food require approval, some imports are banned, and issues related to the enforcement and protection of intellectual property rights also contribute to the cost of trade. Consequently, an additional 20 percent is deducted from Chile’s trade freedom score to account for these non-tariff barriers.

FISCAL FREEDOM — 85.7%
Chile has a high income tax rate but a low corporate tax rate. The top income tax rate is 40 percent, and the top corporate tax rate is 17 percent. Other taxes include a value-added tax (VAT), a tax on check transactions, and a property tax. In the most recent year, overall tax revenue as a percentage of GDP was 15.9 percent.

PROPERTY RIGHTS — 90%
Private property is well protected. Contractual agreements are secure, and court administration is transparent and efficient at executing trials. Expropriation is highly unlikely and receives compensation. Judicial corruption is rare.

FREEDOM FROM GOVERNMENT — 87.6%
Total government expenditures in Chile, including consumption and transfer payments, are very moderate. In the most recent year, government spending equaled 20.4 percent of GDP, and the government received 8.2 percent of its total revenues from state-owned enterprises and government ownership of property.

FREEDOM FROM CORRUPTION — 73%
Corruption is perceived as minimal. Chile ranks 21st out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005.

LABOR FREEDOM — 85.3%
The labor market operates under flexible employment regulations that enhance employment and productivity growth. The non-salary cost of employing a worker is very low, and dismissing a redundant employee is relatively costless. Chile’s labor market flexibility is one of the 20 highest in the world.

MONETARY FREEDOM — 79.9%
Inflation is relatively low, averaging 2.5 percent between 2003 and 2005. Relatively low and stable prices explain most of the monetary freedom score. Many prices are determined in the market, but the government maintains prices for utilities, including water, fixed-line telecommunications, and electricity, and prices for certain agriculture products are controlled within price bands. Consequently, an additional 10 percent is deducted from Chile’s monetary freedom score to adjust for measures that distort domestic prices.

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2007 Index of Economic Freedom

CHINA, PEOPLE’S REPUBLIC OF
Rank: 119 Regional Rank: 22 of 30

C

hina’s economy is 54 percent free, according to our 2007 assessment, which makes it the world’s 119th freest economy. Its overall score is 1.4 percentage points lower than last year, partially reflecting new methodological detail. China is ranked 22nd out of 30 countries in the Asia–Pacific region, and its overall score is slightly lower than the regional average. China scores well in the factors measuring government expenditures and freedom from government, and moderately well in monetary freedom and trade freedom. Total government expenditures equal less than 20 percent of GDP. As an autocratic state, China imposes severe restrictions on many areas of its economy. Investment freedom, financial freedom, property rights, and corruption are particularly egregious. Foreign investment is highly controlled and regulated, the judicial system enforcing these regulations is highly politicized, and corruption is rampant. The state maintains a tight control over the financial sector, where the government owns all the banks directly or indirectly. Fiscally, the top income and corporate tax rates are fairly high at 45 percent and 33 percent, respectively. BACKGROUND: China is the world’s second largest economy in absolute terms but rather poor in terms of average income per person. Despite the government’s efforts to cool double-digit economic growth through cutbacks of fixed asset investment and controls on bank lending, investment and a trade surplus continue to surge. Political repression persists with tight restraints on speech and expression, particularly via the Internet, and unrelenting persecution of religious and ethnic minorities. Violations of intellectual property rights also remain hurdles to improved trade relations with the United States. Industry makes up the vast majority of China’s economic output, but rural areas have the highest population, driving a large urban migration.

The economy is 54% free
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Asia Average = 59.1 World Average = 60.6

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2007

QUICK FACTS
Population: 1.3 billion GDP (PPP): $7.6 trillion 10.1% growth in 2004 9.2% 5-yr. comp. ann. growth $5,896 per capita Unemployment: 9.9% (2004 estimate) Inflation (CPI): 3.9% FDI (net inflow): $58.8 billion Official Development Assistance: Multilateral: $231 million Bilateral: $2.7 billion (0.8% from the U.S.) External Debt: $248.9 billion Exports: $655.8 billion Primarily machinery and equipment, plastics, optical and medical equipment, iron and steel Imports: $606.5 billion Primarily machinery and equipment, oil and mineral fuels, plastics, optical and medical equipment, organic chemicals, iron and steel

How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage.org/index.

139

overall tax revenue as a percentage of GDP was 15. Subsidies allow state-owned enterprises to produce and sell goods to wholesalers and retailers at artificially low prices. and sanitary and phytosanitary restrictions to protect its economy. and the government received 3. who face looser restrictions. Real estate transactions are subject to government approval. Roughly 90 percent of traded product prices are determined in the market. New property legislation is on hold because of a strong ideological debate. averaging 2. Consequently. including consumption and transfer payments. The number of foreign insurers.3 percent between 2003 and 2005. import bans. and quantitative limits on foreign exchange. coal. are low. There are extensive controls. electricity. LABOR FREEDOM — 63. export taxes.5 30 30 20 32 63.8 percent of GDP. TRADE FREEDOM — 68% China’s weighted average tariff rate was 6 percent in 2004.7% China has a high income tax rate and a moderate corporate tax rate. = world average BUSINESS FREEDOM — 54. The labor code mandates retraining or replacement before firing a worker. but the government continues to use quotas. China ranks 78th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. and capital transactions. Numerous foreign banks have opened branches but face burdensome regulations. agricultural products. FREEDOM FROM GOVERNMENT — 88. Foreign participation in capital markets is limited. and a complex approval process are major obstacles to foreign investors. operate. Non-performing loans are estimated to be much higher than the official figure of 25 percent. has grown rapidly. and close a business is constrained by the national regulatory environment. Over 30. Many companies resort to arbitration because of concerns about the speed and impartiality of the courts. Issues involving the enforcement and protection of intellectual property rights also add to the cost of trade. government spending equaled 20. Even when courts do attempt to enforce decisions. burdensome licensing and regulatory rules.CHINA’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 54. The banking sector is the largest part of the financial system and is almost entirely state-owned. and dismissing a redundant employee can be relatively costly.1 percent of its total revenues from state-owned enterprises and government ownership of property. The overall freedom to start.7 88. and the government controls investment in the stock market. Consequently. current transfers. MONETARY FREEDOM — 75.1 percent. the capacity to end employment varies widely according to the location and the size of the enterprise. 140 2007 Index of Economic Freedom . FISCAL FREEDOM — 77. but weak rule of law. In the most recent year. L L L L L L L L L L 50 100 INVESTMENT FREEDOM — 30% China’s accession to the World Trade Organization has improved its operating environment.000 financial institutions were operating in 2005. In the most recent year.6 75. an additional 20 percent is deducted from China’s trade freedom score to account for these non-tariff barriers. FREEDOM FROM CORRUPTION — 32% Corruption is perceived as significant. Entrepreneurship should be easier for maximum job creation. an additional 15 percent is deducted from China’s monetary freedom score to adjust for price controls. local officials often ignore them with impunity. Other taxes include a value-added tax (VAT) and a real estate tax.5 0 and other “essential” goods. The top income tax rate is 45 percent. The implementation of court rulings is inconsistent. PROPERTY RIGHTS — 20% China’s judicial system is weak. 100 = most free. Four large state-owned banks account for over 53 percent of banking assets.5% Inflation in China is relatively low. Corruption is prevalent. government approval requirements. The government allows foreign investment only in specific sectors. The state directs the allocation of credit. pharmaceuticals. The non-salary cost of employing a worker is very high. and its inconsistent enforcement of regulations is a barrier to entrepreneurial activities. lack of transparency.9% Starting a business takes an average of 35 days. China lacks legal and regulatory transparency. China has reduced its non-tariff barriers as a result of implementing its WTO protocol of accession. The central bank regulates the flow of foreign exchange into and out of the country. but the government maintains prices for petroleum. and closing a business is difficult. and the top corporate tax rate is 33 percent.9 68 77.6% Total government expenditures in China.5% The labor market operates under restrictive employment regulations that hinder employment and productivity growth. Obtaining a business license can be difficult. Relatively low and stable prices explain most of the monetary freedom score. Capital markets are limited and plagued by poor governance and weak regulatory oversight. FINANCIAL FREEDOM — 30% China’s financial system is complex and tightly controlled by the government. and the big four stateowned banks lend primarily to state-owned enterprises. In general. compared to the world average of 48 days.

COLOMBIA Rank: 73 Regional Rank: 18 of 29 C olombia’s economy is 60. A safer environment for business has helped to cut unemployment by at least 4 percentage points in the past four years. who was elected in 2002. but judicial corruption and an ongoing civil war make an entirely transparent legal process difficult. comp. and the state does not receive significant income from government-owned businesses. growth $7.org/index. Rule of law is uneven. Uribe’s next challenge will be to stimulate growth in an economy that relies heavily on exporting petroleum. but tax revenues are relatively low as a percentage of GDP. Business contracts are generally respected.9 billion 4. making it difficult to move capital into the country.6% Inflation (CPI): 5.5 billion Primarily petroleum. The economy is 60. cut flowers Imports: $19. and cut flowers and to reduce the number of people living below the poverty line.6 billion Official Development Assistance: Multilateral: $62 million Bilateral: $564 million (70% from the U.5 percent free. which now stands at 55 percent. and freedom from corruption. Colombia faces some economic challenges. property rights. which makes it the world’s 73rd freest economy.4 percentage points lower than last year. coal. consumer goods.0% 5-yr.8% growth in 2004 3.) External Debt: $37. ann.S. Income and corporate tax rates are high. 141 .9% FDI (net inflow): $2. and its overall score is equal to the regional average. has begun to restore order and to demobilize these illegal rural armies. however.3 World Average = 60.7 billion Exports: $19. BACKGROUND: Colombia is one of South America’s oldest continuous democracies.256 per capita Unemployment: 13. bananas. partially reflecting new methodological detail.6 20 0 1995 2007 QUICK FACTS Population: 44. killing and marauding throughout 60 percent of the countryside. fuels.9 billion Primarily industrial equipment. apparel. transportation equipment. Colombia is ranked 18th out of 29 countries in the Americas. regulations are complex and uncertain. President Alvaro Uribe. according to our 2007 assessment.5% free 100 80 @ @ @ @ @ @ @ @ @@ @ @ @ @ @ @ @ @ @ @ @ @ @@ @@ @ @@ @ @ @ @ @@ 60 40 Americas Average = 62. coffee. Colombia scores moderately well in fiscal freedom and freedom from government and somewhat less well in several other factors. It scores poorly in labor freedom.9 million GDP (PPP): $325. paper products. Government spending is also low. In the 1990s. coffee. chemicals. electricity How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. Despite nominal openness to foreign investment. Its overall score is 2. leftist insurgents and paramilitary vigilante groups joined forces with drug traffickers.

Arbitration is complex and dilatory. In the most recent year. except for activities related to national security. operate. A reform approved in 2004 will shift the criminal system to a U. FREEDOM FROM GOVERNMENT — 87% Total government expenditures. L L L L L L L L L L 50 100 INVESTMENT FREEDOM — 50% Most sectors of the economy are open to foreign investment.3 percent of its total revenues from state-owned enterprises and government ownership of property. some pharmaceutical products.and air-transport fares. and school tuition. Individuals receive a month’s worth of wages for each year of employment. Relatively moderate and unstable prices explain most of the monetary freedom score. overall tax revenue as a percentage of GDP was 13. and the government received 8. Entrepreneurship should be easier for maximum job creation. In the most recent year. The government has strengthened regulations and seized some banks for falling below solvency requirements. and corruption add to the cost of trade. the Agriculture Ministry may intervene temporarily to freeze the prices of basic foodstuffs through agreements The labor market operates under restrictive employment regulations that hinder employment and productivity growth. FREEDOM FROM CORRUPTION — 40% Corruption is perceived as significant. All foreign investment must be registered with the central bank. FINANCIAL FREEDOM — 60% Colombia’s financial sector is relatively large and sophisticated.4 87 70.4 61. public utility services. lack of transparency. some petrochemicals. including consumption and transfer payments. petroleum derivatives. The non-salary cost of employing a worker is high. price bands.4% Colombia’s weighted average tariff rate was 9. An extensive informal credit market exists. The largest obstacles to foreign investment are excessive regulation and constantly changing business rules.4 82. natural gas.3 percent in 2004. There is a 4 percent tax on financial transactions through 2007.S. The government maintains prices for ground. especially with regard to the enforcement of awards.9 percent of GDP. All financial institutions nationalized during the crisis were privatized or liquidated by mid-2006 except for the state-owned Granbanco-Bancafé. an additional 20 percent is deducted from Colombia’s trade freedom score to account for these non-tariff barriers. Consequently. The overall freedom to start. and close a business is relatively well protected by the national regulatory environment.2 50 60 30 40 53 0 with regional wholesalers. Foreign investment in television network and programming companies is capped at 40 percent. Foreign investors face few restrictions in Colombia’s small equity markets. 100 = most free. residential rents. FISCAL FREEDOM — 82. 142 2007 Index of Economic Freedom . Obtaining a business license is difficult. Payments and transfers must be registered with the central bank and may be subject to approval and quantitative limits. Significant progress has been made in dismantling non-tariff barriers. with the option of making authorized withdrawals from one’s account in certain situations. but dismissing a redundant employee can be relatively costless. = world average BUSINESS FREEDOM — 71. A few conglomerates are emerging to take advantage of reforms that permit universal banking.COLOMBIA’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 71. TRADE FREEDOM — 61. Bureaucracy remains a barrier to entrepreneurial activities. compared to the world average of 48 days. but there has been some progress in simplifying procedures and eliminating red tape. The banking sector has undergone significant consolidation and privatization since the 1998–1999 financial crisis. Terrorism is a serious problem in some areas of the country. Consequently. and two groups accounted for 58 percent of financial sector assets in 2005. Residents who work in certain internationally related companies may hold foreign exchange accounts.4% Starting a business takes an average of 44 days. but closing a business is relatively easy. Foreign companies have a substantial presence in the insurance sector. averaging 5. Colombia ranks 55th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005.5 percent between 2003 and 2005. schoolbooks. Other taxes include a value-added tax (VAT) and a financial transactions tax. but contracts are generally respected. are low. To avoid speculation. Both the top income tax rate and the top corporate tax rate are 35 percent. import bans and restrictions. LABOR FREEDOM — 53% MONETARY FREEDOM — 70.-style prosecutorial system.4% Colombia has high tax rates. issues involving the enforcement and protection of intellectual property rights.2% Inflation is moderate. Portfolio foreign investment must remain in the country for one year. government spending equaled 20.8 percent. but bureaucracy. The unemployment insurance program consists of a mandatory individual severance account system. an additional 15 percent is deducted from Colombia’s monetary freedom score to adjust for measures that distort domestic prices. PROPERTY RIGHTS — 30% Corruption is present in the lowest levels of the judiciary and civil service.

8 billion (2004 estimate) Primarily diamonds. copper. corruption remains endemic. and the infrastructure is very poor.6 @ @ @ @ @ @ @ 60 @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ 40 @ @ @ 20 0 1995 2007 QUICK FACTS Population: 55. troops from Angola. After Kabila’s 2001 assassination.7 World Average = 60.) External Debt: $11.3% 5-yr.CONGO.4 percent. with most of the population engaged in subsistence agriculture. 143 . mining and other machinery. when it received a score of 26. Namibia. The last time the DRC was graded was in 2000. The economy cannot be graded 100 80 Sub-Saharan Africa Average = 54. BACKGROUND: The Democratic Republic of Congo. crude oil.9 million GDP (PPP): $39. When those troops refused to leave and sought to oust Kabila. his son assumed power and set up a transitional government. Laurent Kabila overthrew Mobutu Sese Seko’s government in 1997. ann. is among the world’s poorest countries.9% growth in 2004 1. coffee.1% FDI (net inflow): $900 million (gross) Official Development Assistance: Multilateral: $685 million Bilateral: $1. cobalt Imports: $2. despite a large population and abundant resources. comp. growth $705 per capita Unemployment: n/a Inflation (CPI): 4.S.org/index. The elections scheduled for July 2006 were the first in 40 years. Instability continues.2 billion (16% from the U.8 billion Exports: $1. Aided by Rwandan and Ugandan troops. and Zimbabwe intervened. DEMOCRATIC REPUBLIC OF (FORMERLY ZAIRE) Rank: Not Ranked Regional Rank: Not Ranked T he economic freedom of the Democratic Republic of Congo (DRC) cannot be graded because of the violence and chaos of recent years. transport equipment.4 billion 6. fuels How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage.1 billion (2004 estimate) Primarily food.

8 percent in 2003.BUSINESS FREEDOM — NOT GRADED Starting a business takes an average of 155 days. but dismissing a redundant employee is costly. government spending equaled 15. and fighting. banditry. and close a business is restricted by the national regulatory environment. and a frequent lack of professionalism and control by officials who are responsible for their enforcement. LABOR FREEDOM — NOT GRADED The labor market operates under highly restrictive employment regulations that hinder employment and productivity growth. Nevertheless. economic and political instability. compared to the world average of 48 days. FINANCIAL FREEDOM — NOT GRADED The banking system is unstable. There are no restrictions on foreign exchange accounts for the credit or debit of international transactions for either residents or non-residents. including consumption and transfer payments. frequent policy changes. a multiplicity of administrative agencies. and operations of the banks that continue to function have been hurt by war and political instability. averaging 16. The Democratic Republic of Congo ranks 144th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. FREEDOM FROM GOVERNMENT — NOT GRADED Total government expenditures in the Democratic Republic of Congo. Local conflicts are common. PROPERTY RIGHTS — NOT GRADED Private property is not secure. the public administration is not reliable. Supervision of banks is very poor.3 percent between 2003 and 2005. are low. While important structural measures have recently been implemented.3 percent of GDP. MONETARY FREEDOM — NOT GRADED Inflation in the Democratic Republic of Congo is high. and the viability of the financial system depends on progress in establishing peace broadly through the country. there were 12 functioning commercial banks. Most of the country’s trade barriers result from complex regulations. In 2005. half of which were undergoing extensive restructuring. Most 144 2007 Index of Economic Freedom . Another nine banks are in process of liquidation. including the liberalization of most prices. The overall freedom to start. and the top corporate tax rate is 40 percent. some prices are still controlled to some degree through the public sector. although there is a growing network of microfinance and credit institutions. foreign direct investment has increased in the years since the establishment of the transitional government. and most banks fail to meet basic prudential standards. INVESTMENT FREEDOM — NOT GRADED War. Larger banks are mostly subsidiaries of foreign banks. Courts suffer from widespread corruption. and anti-market policy decisions have deterred foreign investment. unpredictable monetary policy and hyperinflation. FISCAL FREEDOM — NOT GRADED The Democratic Republic of Congo has high tax rates. Most credit is informal. Relatively unstable prices explain most of the monetary freedom score. The execution of routine transactions through official bodies is fraught with difficulty. There is no stock exchange. Political interference and the local cartels obstruct foreign investment. BBC News reports that the government has no control over large parts of the country. The top income tax rate is 50 percent. operate. corruption. FREEDOM FROM CORRUPTION — NOT GRADED Corruption is perceived as widespread. Employment in the formal sector remains negligible as the informal sector dominates the economy. and unrecoverable loans. Obtaining a business license takes about 300 days and involves 16 different procedures. Other taxes include a sales tax and a tax on vehicles. which has managed to make some progress in restoring peace. TRADE FREEDOM — NOT GRADED The Democratic Republic of Congo’s weighted average tariff rate was 12. Bank formation faces significant barriers. and both expatriates and nationals are subject to selective application of a complex legal code. and abuses of human rights threaten property rights and deter economic activity. Entrepreneurship should be easier for maximum job creation. The non-salary cost of employing a worker is low. In the most recent year. banks act as financial agents for the government or extend credit to international institutions operating in the country.

however. cocoa.S. but the top corporate tax rate is a more moderate 38 percent. Slow progress has been made toward a more market-oriented economy. and its overall score is lower than the regional average.8 billion 3. food 145 . but poor infrastructure. who seized power in 1997 and won the 2002 election.9 million GDP (PPP): $3.7% FDI (net inflow): $668 million (gross) Official Development Assistance: Multilateral: $84 million Bilateral: $80 million (0. Significant restrictions on foreign investment combine with domestic regulations and an inflexible labor market to create a business-hostile climate. sugar. and high labor. and corruption is a problem.2% 5-yr. but it does score moderately well in monetary freedom and fiscal freedom. diamonds Imports: $994. energy. and labor freedom all score poorly. Oil accounted for 55 percent of GDP. The top income tax rate is 50 percent. The economy is 43% free 100 80 Sub-Saharan Africa Average = 54. plywood. Investment freedom. freedom from corruption.7 World Average = 60. How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage.8 million Primarily capital equipment. onerous regulation. BACKGROUND: Congo’s parliament is controlled by allies of President Denis Sassou-Nguesso. and the preponderance of government revenue in 2004.) External Debt: $5. Its overall score is 0.org/index.8 billion Exports: $1. and the government has promised to improve accountability and financial disclosure. financial freedom. which makes it the world’s 151st freest economy. REPUBLIC OF Rank: 151 Regional Rank: 39 of 40 T he Republic of Congo’s economy is 43 percent free.6 @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ 60 40 20 0 1995 2007 QUICK FACTS Population: 3.5 billion Primarily petroleum. the government interferes extensively with market prices.6 percentage point lower than last year. growth $978 per capita Unemployment: n/a Inflation (CPI): 1. Transparency has improved in the oil sector. 95 percent of exports. property rights. coffee. construction materials. Congo does not rank strongly in any category. lumber. according to our 2007 assessment. Congo is ranked 39th out of 40 countries in the sub-Saharan Africa region. comp.4% from the U. Congo is beset by substantial economic problems.6% growth in 2004 4.CONGO. partially reflecting new methodological detail but mostly reflecting reduced corruption. Very low inflation and stable prices give Congo a positive monetary score. Demobilization and disarmament efforts continue under the 2003 peace accord between the government and most rebel groups. ann. The weak rule of law jeopardizes the protection of property rights. and transportation costs discourage investment. and overall tax revenue is relatively small as a percentage of GDP.

5 percent between 2003 and 2005. Investments of over CFAF 100 million require the approval of the Ministry of Economy. The regulator considered only two of Congo’s four banks to be in good condition. Relatively low and stable prices explain most of the monetary freedom score. an additional 15 percent is deducted from Congo’s monetary freedom score to adjust for measures that distort domestic prices. Security of contracts and the enforcement of justice cannot be guaranteed through the slow-moving justice system.4% Starting a business takes an average of 71 days. but companies can hold foreign exchange accounts with special approval. operate. overall tax revenue as a percentage of GDP was 8. and the top corporate tax rate is 38 percent. overburdened. water. one to be in fragile condition.9 77. Other taxes include a value-added tax (VAT). Obtaining a business license is very difficult. and other goods and services. The non-salary cost of employing a worker is high.7 percent.3% Inflation in Congo is relatively low. FISCAL FREEDOM — 73. MONETARY FREEDOM — 77. It has taken over the fourth bank but plans to reprivatize it after it has been recapitalized. The overall freedom to start.4 44.4% Congo’s weighted average tariff rate was 17. and subject to political influence and bribery. Residents may not hold foreign exchange accounts. red tape. Finance.3 30 30 10 23 44. Congress approved a bill to attract foreign investors in the mining sector. Entrepreneurship should be easier for maximum job creation. but dismissing a redundant employee can be relatively costless. Congo is a member of the Central African Economic and Monetary Community along with five other countries. compared to the world average of 48 days. electricity. the Banque des Etats de l’Afrique Centrale. The government has sold the healthy assets of three state banks to private investors. A joint banking commission (Commission bancaire de l’Afrique Centrale) regulates Congo’s commercial banks.REPUBLIC OF CONGO’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 40. an additional 20 percent is deducted from Congo’s trade freedom score to account for these non-tariff barriers. Consequently. and corruption. PROPERTY RIGHTS — 10% The war in the late 1990s reduced the country to chaos. L L L L L L L L L L 50 100 100 = most free. The Republic of Congo’s labor flexibility is one of the lowest in the world.8% The labor market operates under highly restrictive employment regulations that hinder employment and productivity growth.4 73.2 56. = world average BUSINESS FREEDOM — 40. FREEDOM FROM GOVERNMENT — 56. Non-residents may hold foreign exchange accounts subject to government approval. The lack of legal and regulatory transparency impedes the creation of new businesses. which affects rail transport. Lack of resources continues to be a severe problem. FINANCIAL FREEDOM — 30% Congo’s financial sector is small.6 percent of GDP.8 percent in 2002. FREEDOM FROM CORRUPTION — 23% Corruption is perceived as widespread. but closing a business is relatively easy. government spending equaled 28. including consumption and transfer payments. and Budget within 30 days unless they involve the creation of a mixed public–private-ownership enterprise.9 percent of its total revenues from state-owned enterprises and government ownership of property. and the government received 71. 146 2007 Index of Economic Freedom . and the fourth to be critical at the end of 2004. an inefficient customs service. and close a business is seriously limited by the national regulatory environment.2% Congo has a very high income tax rate and a high corporate tax rate. In the most recent year. There are very rigid restrictions on increasing or contracting the number of working hours. Consequently. underfinanced. The top income tax rate is 50 percent. TRADE FREEDOM — 44. a tax on rental values. telecommunications. Payments and transfers to most countries are subject to documentation requirements. and hindered by instability. The government maintains prices through ownership and subsidization of the large public sector. Capital transactions to most countries require exchange control approval and are restricted. The judiciary is corrupted. and an apprenticeship tax. and a common currency pegged to the euro. LABOR FREEDOM — 44. averaging 1. The most significant non-tariff barriers include restrictive import licensing rules. the civil war left the country with almost no judicial records. underdeveloped. In the most recent year.9% Total government expenditures in Congo.8 0 INVESTMENT FREEDOM — 30% In 2003. The Republic of Congo ranks 130th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. are moderate. The state is still dealing with non-performing loans accumulated by state-owned banks before privatization because of poor management and political interference. These countries share a common central bank.

insurance.1 percent free. bananas. Costa Rica is ranked 12th out of 29 countries in the Americas.6% (2005 estimate) Inflation (CPI): 12. is extremely time-consuming and complicated. while transparent and not corrupt. who narrowly won a second term in February 2006. including state monopolies in telecommunications. ann. which makes it the world’s 51st freest economy. Costa Rica receives high scores in fiscal freedom and freedom from government. comp. consumer goods. medical equipment Imports: $9. has pledged to balance the budget and to guide Costa Rica’s entrance into the Dominican Republic–Central America Free Trade Agreement (DR–CAFTA) with the United States. electronic components. utilities.3 million GDP (PPP): $40. and its economy is generally business-friendly. government expenditures are reasonable. financial freedom. Costa Rica could improve its monetary freedom.3 billion 4. and bankruptcy procedures are difficult.3% FDI (net inflow): $555. according to our 2007 assessment. capital equipment. It has moderate personal and corporate tax rates.3 World Average = 60. Its overall score is 2. growth $9.) External Debt: $5.S. and tax revenue is fairly low as a percentage of GDP. 147 . Although there are no glaring absences of freedom in the economy.8 million Official Development Assistance: Multilateral: $13 million Bilateral: $64 million (6% from the U. such as trade freedom.1 billion Primarily raw materials.481 per capita Unemployment: 6.org/index. textiles. it takes far longer than the global average to start a business. and social security pensions. petroleum refining. The court system. and its overall score is higher than the regional average.6 billion Primarily coffee. and state-owned businesses are not a significant source of revenue. partially reflecting new methodological detail. banking. Also.7 billion Exports: $8.6 20 0 1995 2007 QUICK FACTS Population: 4. However. BACKGROUND: Costa Rica’s democratic government is one of the few in Latin America to have a sound system of checks and balances. President Oscar Arias. Costa Rica also receives moderate scores in other factors.COSTA RICA Rank: 51 Regional Rank: 12 of 29 C osta Rica’s economy is 65. petroleums How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. State-owned banks dominate the financial sector.2% 5-yr.1% free 100 80 @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @@ @ @ 60 40 Americas Average = 62. and property rights. pineapples. where it boasts a low average tariff rate.1% growth in 2004 3. Similarly.3 percentage points lower than last year. over which there is significant government control. Costa Rica also has a bloated public sector. sugar. The economy is 65.

and water. There are no restrictions on land purchases. and issues involving the enforcement and protection of intellectual property rights add to the cost of trade.6% Costa Rica has moderate tax rates. In the most recent year. are reserved for state companies. A few sectors. Nearly all Costa Rican banks have significant offshore banking operations. Entrepreneurship should be easier for maximum job creation. Commercial regulations and practices are generally transparent and foster competition. L L L L L L L L L L 50 100 INVESTMENT FREEDOM — 70% Costa Rica offers one of Central America’s better investment climates. Other taxes include a value-added tax (VAT) and a tax on interest. although other institutions may sell policies underwritten by the INS. PROPERTY RIGHTS — 50% The judicial system can be slow and complicated. FINANCIAL FREEDOM — 40% Costa Rica’s financial system is subject to extensive government influence.6 92. and close a business is limited by the national regulatory environment. but dismissing a redundant employee is relatively costless.5 72. and the government received 3. an additional 20 percent is deducted from Costa Rica’s trade freedom score to account for these non-tariff barriers. About half of private banks are owned by foreign investors from Latin America or North America. Obtaining a business license is relatively simple. Sanitary and phytosanitary requirements.4 88. Bureaucratic procedures are often long and discourage entrepreneurial activities. In the most recent year. The overall freedom to start. LABOR FREEDOM — 65. and radioactive materials. and foreign investors are treated the same as domestic investors. The insurance sector is monopolized by the state-owned Instituto Nacional de Seguros. Relatively high and unstable prices explain most of the monetary freedom score. but a legal complaint filed over a contract takes an average of more than one and a half years to resolve. especially when the disputed land is rural and not being worked actively. government spending equaled 16. FISCAL FREEDOM — 88.5% Starting a business takes an average of 77 days. Capital markets are small. The government has partially privatized the pension system. hydrocarbons. Costa Rica ranks 51st out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. The process to resolve squatter cases through the courts can be especially cumbersome.9 percent of its total revenues from state-owned enterprises and government ownership of property. The non-salary cost of employing a worker is high.4% Costa Rica’s weighted average tariff rate was 3. The legal owner of land is at a disadvantage in a system that quickly recognizes rights acquired by squatters. The government applies price controls to all goods on a basic consumption list. operate. Contracts are generally upheld. Consequently. telecommunications. are moderate. An electronic “one-stop” import and export window and other recent improvements have significantly reduced the time required for customs processing. MONETARY FREEDOM — 67. overall tax revenue as a percentage of GDP was 13. Consequently.4 0 percent is deducted from Costa Rica’s monetary freedom score to adjust for measures that distort domestic prices. and the top corporate tax rate is 30 percent. including consumption and transfer payments. FREEDOM FROM CORRUPTION — 42% Corruption is perceived as present. but closing a business is difficult. FREEDOM FROM GOVERNMENT — 92. There are no controls on capital flows. which can be cumbersome and lengthy. petroleum.1 70 40 50 42 65. There are no restrictions or controls on the holding of foreign exchange accounts by either residents or non-residents.6 percent of GDP. averaging 13 percent between 2003 and 2005. Foreign insurance companies are restricted in their ability to offer services. and trading mostly involves short-term government debt. While private banks may operate freely. The government retains considerable influence over lending.4 percent. TRADE FREEDOM — 72.4% The labor market operates under relatively flexible employment regulations that need to improve for employment and productivity growth. compared to the world average of 48 days.3% Total government expenditures in Costa Rica.8 percent in 2004. The top income tax rate is 25 percent. and investments are secure. such as insurance. telecommunications.3 67. state-owned banks dominate the sector and account for over 58 percent of banking sector assets. but reporting requirements are mandatory for some transactions.1% Inflation in Costa Rica is relatively high. an additional 10 148 2007 Index of Economic Freedom . including energy. 100 = most free. There are inflexible restrictions on increasing and contracting working hours.COSTA RICA’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 63. although the government has been known to expropriate land owned by foreign investors. but customs procedures remain complex and bureaucratic. = world average BUSINESS FREEDOM — 63.

investment freedom. chemicals. fuels and lubricants. before the International Criminal Tribunal for the Former Yugoslavia.3 percent free.1% FDI (net inflow): $762.9 percentage point lower than last year. Croatia is recovering from a decade-long civil war. Recent efforts at economic reform have met with some success. but other problems remain to be solved. comp. The economy is 55. fuels Imports: $20. and inefficient bureaucracy.6 billion Exports: $17. transport and electrical equipment.1% 5-yr.3% free 100 Europe Average = 67. a Croatian general accused of war crimes. Freedom from government. chemicals.) External Debt: $31. and significant state regulation impedes the easy flow of commerce. and banking assets are 90 percent privately owned.6 million Official Development Assistance: Multilateral: $32 million Bilateral: $108 million (43% from the U. the corporate tax rate is low. and prices are fairly stable. food. textiles.S. but Croatia’s monetary freedom score is hurt by lingering government price manipulations.8 billion Primarily transport equipment.2 billion 3. food 149 .CROATIA Rank: 109 Regional Rank: 37 of 41 C roatia’s economy is 55. and some investors prefer to seek international arbitration. Croatia is ranked 37th out of 41 countries in the European region. which makes it the world’s 109th freest economy. Croatia scores well in trade freedom and in monetary freedom. exist for those investors willing to brave Croatia’s regulatory maze. property rights. Significant unofficial restrictions on foreign investment. and total tax revenue is not unreasonably high as a percentage of GDP. views the need for judicial reform as the central long-term obstacle to Croatia’s possible membership.7% Inflation (CPI): 2. partially reflecting new methodological detail. political interference. and its overall score is below the regional average. Its overall score is 0. ann. The court system is prone to corruption. Although the top income tax rate is high. growth $12.6 80 @ @ @@ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ 60 40 20 0 1995 2007 QUICK FACTS Population: 4. Government expenditures are extremely high.5 World Average = 60.2 billion Primarily machinery. Inflation is low. according to our 2007 assessment. BACKGROUND: Croatia’s hopes of beginning accession talks with the European Union have risen since the arraignment of Ante Gotovina.8% growth in 2004 4.191 per capita Unemployment: 18. Two-thirds of the economy is privatized.4 million GDP (PPP): $54. How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. for example. such as highly politicized decision-making.org/index. Organized crime is less prevalent in Croatia than in other Balkan countries. The EU. and freedom from corruption are all low-scoring areas.

1 percent in 2005. and government approval is required in certain instances. L L L L L 50 L L L L L 100 100 = most free. High wage costs and rigid labor laws impede business activities.CROATIA’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 53. but much remains to be done. Because of a complex bureaucracy and lack of transparency. The labor code mandates retraining or replacement before firing a worker. and newly adopted financial regulations harmonize with European Union standards. overall tax revenue as a percentage of GDP was 24. are very high. are subject to limitations and conditions set by the Ministry of Finance. but numerous limitations exist. Obtaining a business license is very difficult. and securities markets are open to foreign investors. and closing a business is difficult. FREEDOM FROM GOVERNMENT — 36. FINANCIAL FREEDOM — 60% Croatia’s financial system is stable and competitive. averaging 2.2 percent. There were 34 commercial banks and four savings banks in 2005.5% Total government expenditures in Croatia. FREEDOM FROM CORRUPTION — 34% Corruption is perceived as significant. = world average BUSINESS FREEDOM — 53. The judicial system is one of the areas that are most affected by corruption. personal and political loyalty can trump economic merit when it comes to establishing a new investment. Many price supports and subsidies have been eliminated. as burdensome administrative regulations challenge new entrepreneurs. TRADE FREEDOM — 77. but price changes on some 30 products must be submitted for approval to the Ministry of Economy. PROPERTY RIGHTS — 30% The court system is cumbersome and inefficient. some investors have chosen to insist that contract arbitration take place outside of Croatia. The insurance sector is small but highly competitive. compared to the world average of 48 days. The top income tax rate is 45 percent.8 79. and the top corporate tax rate is 20 percent. the Ministry must be notified two weeks in advance of price changes for milk and bread. Very long case backlogs mean that business disputes can go unresolved for years. government spending equaled 51. Non-tariff barriers include customs corruption and strict testing and certification requirements for some imports.1 percent of its total revenues from state-owned enterprises and government ownership of property. In the most recent year. Consequently.8 77.9% Croatia has a high income tax rate but a low corporate tax rate. and dismissing a redundant employee is relatively costly. 150 2007 Index of Economic Freedom .5 79. The overall freedom to start. but unofficial barriers persist. Consequently. FISCAL FREEDOM — 79.8% Starting a business takes an average of 45 days.3% Inflation in Croatia is relatively low. including consumption and transfer payments. operate.6 percent of GDP. Croatia ranks 70th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. The stock exchange has been growing rapidly. For example. and the government received 4. The non-salary cost of employing a worker is high. Both residents and non-residents are allowed to hold foreign exchange accounts. Privatization has progressed slowly.9 36. an additional 20 percent is deducted from Croatia’s trade freedom score to account for these non-tariff barriers. Two national commercial banks (Zagrebacka Banka and Privredna Banka Zagreb) are majority foreign-owned and control over 40 percent of banking assets. Some capital transactions. In the most recent year.3 50 60 30 34 52 0 INVESTMENT FREEDOM — 50% Foreign investors have the same rights and status as domestic investors and may invest in nearly every sector of the economy.8% Croatia’s weighted average tariff rate was 1. The partially stateowned Croatia Osiguranje is the largest player in the insurance sector. The government of Croatia has made a commitment to reinvigorate its efforts to reform the judiciary. Many banking assets are foreign-owned. The government also imposes a value-added tax (VAT).9 percent between 2003 and 2005. Foreigners may purchase real estate only with permission from the government. Relatively low and stable prices explain most of the monetary freedom score. Bureaucratic obstacles remain onerous. Entrepreneurship should be easier for maximum job creation. such as inward portfolio investment. LABOR FREEDOM — 52% The labor market operates under restrictive employment regulations that hinder employment and productivity growth. an additional 10 percent is deducted from Croatia’s monetary freedom score. The government owns over 98 percent of Hrvatska Poštanska Banka (the largest domestic bank) and the Croatian Bank for Reconstruction and Development. and close a business is restricted by the national regulatory environment. MONETARY FREEDOM — 79. accounting for over 40 percent of assets.

Cuba has a moderate average tariff of 10 percent but very restrictive non-tariff barriers to trade. food.7 percent free.) External Debt: $12. The Castro government.3% FDI (net inflow): $2. BACKGROUND: Cuba is a one-party Communist state with a command economy that depends heavily on external assistance and a captive labor force. Inflation is moderate. Imports: $5.7% free 100 Americas Average = 62. financial freedom. All aspects of business operations are tightly controlled and government-dominated. In theory.9% (2004 estimate) Inflation (CPI): 1. machinery and equipment. Little reliable.3 World Average = 60. There are no courts independent of political interference. Venezuela supplies Cuba with up to 80. Business freedom. Cuba scores relatively well in very few areas of economic freedom. Communist nations dictate central economic policy.6 billion Primarily petroleum. fish. and official figures on per capita GDP may not reflect actual income.0 billion (2004 estimate) Exports: $2.500 per capita (2005 estimate) Unemployment: 1.CUBA Rank: 156 Regional Rank: 29 of 29 C uba’s economy is 29.000 barrels of oil per day.2 billion (2005 estimate) n/a n/a $3.5 percentage points lower than last year. investment freedom. and Cuba aims to fulfill this in practice. tobacco. As an avowedly Marxist state. but government efforts to control all kinds of prices are pervasive.2 billion Primarily sugar. freedom from corruption. and has detained hundreds of political prisoners in harsh conditions. property rights. in power since 1959.0 million (gross) Official Development Assistance: Multilateral: $20 million Bilateral: $73 million (14% from the U. restricts basic human rights. coffee How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. nickel. and the private sector is very small.2 million GDP (PPP): $39. Havana performs least egregiously in trade freedom and monetary freedom. Its overall score is 2. citrus. and its assistance has enabled Cuba to retreat on limited reforms undertaken in the mid-1990s. The economy is 29. medical products. chemicals 151 .org/index. Cuba is ranked 29th out of 29 countries in the Americas. partially reflecting new methodological detail. which makes it the world’s 156th freest economy. and its overall score is so low that it is less than half of the regional average.S. independent information on the economy is available.6 80 @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @@ 60 40 @ @ @ @ @ @ @ @ @ @ @ @ @ 20 0 1995 2007 QUICK FACTS Population: 11. such as freedom of expression. and private property (particularly land) is strictly regulated by the state. and labor freedom are all weak. according to our 2007 assessment.

Some restrictions have been loosened to permit investment commitments and credit lines from China and Venezuela. TRADE FREEDOM — 60. but the government remains firmly in control. and a separate convertible peso is used as “hard” currency for foreign exchange and non-essential retail. and increasing operating costs. including consumption and transfer payments.7 percent of GDP. Revenues from state-owned enterprises are used to finance social spending and new public investment programs. and customs corruption is common. Consequently. INVESTMENT FREEDOM — 10% The government maintains exchange controls. and licensing 152 2007 Index of Economic Freedom . are very high. imposing onerous regulations. PROPERTY RIGHTS — 10% Private ownership of land and productive capital by Cuban citizens is limited to farming and self-employment. 100 L L L L L L L L L L 50 FINANCIAL FREEDOM — 10% Cuba has increased freedom in the financial sector incrementally over the past decade. The constitution explicitly subordinates the courts to the National Assembly of People’s Power (NAPP) and the Council of State.8 10 65. Central bank authority was enhanced in 2005 to more control the use of hard currency and convertible pesos more closely. an additional 20 percent is deducted from Cuba’s monetary freedom score to adjust for measures that distort domestic prices. A 2003 law requires that transactions between Cuban enterprises must be carried out in convertible pesos rather than U. The government established a central bank in 1997 and converted the Banco Nacional de Cuba into one of a new set of state banks. Procedures for the allocation of hard currency and centralizing of imports have resulted in delays and bottlenecks. dollars.9 percent in 2004. and private entrepreneurship exists only on a very small scale. and the rigid labor market controlled by the government has contributed to creating a large informal economy that employs considerable labor. Cuba has recently backtracked on limited liberalization of foreign investment. Relatively moderate prices explain most of the monetary freedom score. government spending equaled 59. averaging 5 percent between 2003 and 2005. The overall freedom to start. The industrial and services sectors are largely dominated by the state. 100 = most free. MONETARY FREEDOM — 65. FISCAL FREEDOM — 62. Credit and insurance markets are heavily controlled by the central government. The inconsistent and non-transparent application of government regulations impedes the creation of new businesses. and close a business is seriously limited by the national regulatory environment. LABOR FREEDOM — 20% The labor market operates under highly rigid employment regulations that hinder employment and productivity growth. = world average BUSINESS FREEDOM — 10% Cuba’s government controls and regulates the entire economy.8% Cuba has a high income tax rate and a moderate corporate tax rate. Consequently. such as delaying payments from Cuban enterprises. which is headed by President Fidel Castro. The government determines prices for most goods and services and subsidizes much of the economy (although the retail sector has some private and black market activity that is not governmentcontrolled). The government has revised the terms for business licenses to include “social objectives” and has erected other deterrents to investment. an additional 20 percent is deducted from Cuba’s trade freedom score to account for these non-tariff barriers. Over a dozen foreign banks have opened representative offices but are not allowed to operate freely. The top income tax rate is 50 percent. All investments must be approved by the government. operate. In the most recent year.2% Cuba’s weighted average tariff rate was 9.CUBA’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 10 60. The law and trial practices do not meet international standards for fair public trials. and the top corporate tax rate is 35 percent. The Cuban peso is used as the domestic currency. The NAPP and its lower-level counterparts choose all judges.S.8 10 10 10 38 20 0 is required for all businesses. Cuba ranks 59th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005.2 62. The formal labor market is not fully developed.8% Inflation in Cuba is moderate. FREEDOM FROM GOVERNMENT — 10% Total government expenditures in Cuba. FREEDOM FROM CORRUPTION — 38% Corruption is perceived as significant. The state produces most economic output and employs most of the labor force.

Total government expenditures are very high. with moderate severance packages and unemployment benefits. The country’s inflation and average tariff rates are low.1 percent free. trade freedom. enjoys significant trade union support and is unlikely to privatize remaining state-owned companies such as airports. transport equipment 153 . How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. monetary freedom. and its overall score is higher than the regional average. Since EU accession. pharmaceuticals.2 percentage point lower than last year.3% FDI (net inflow): $516.4% 5-yr. Greek Cypriot fiscal policy has focused on consolidating the budget to prepare for entry into the Economic and Monetary Union. Foreign investment is deterred by government scrutiny. ann. potatoes.8 million GDP (PPP): $18. which makes it the world’s 20th freest economy.9% growth in 2004 3. cement. Its overall score is 0. petroleum and lubricants. and open to foreign competition.) External Debt: $10. Freedom from government and investment freedom could be improved. partially reflecting new methodological detail. Starting. and government control of the economy has declined to around 25 percent. according to our 2007 assessment. The government.1% free 100 80 @ @ @ @ @@ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ 60 40 Europe Average = 67.5 World Average = 60.9 billion Primarily consumer goods. fiscal freedom. clothing. growth $22. The labor market is relatively flexible.CYPRUS (GREEK) Rank: 20 Regional Rank: 12 of 41 T he economy of Cyprus is 73. The desire to meet EU requirements has helped to liberalize the economy. especially tourism and financial services. The economy is 73. intermediate goods. and financial freedom.8 billion 3.6 20 0 1995 2007 QUICK FACTS Population: 0. Cyprus scores highly in property rights. machinery.4 million Official Development Assistance: Multilateral: $32 million Bilateral: $33 million (46% from the U. labor freedom. sound. The judiciary is independent of corruption or political influence from the executive.7% Inflation (CPI): 2.org/index.4 billion Primarily citrus. amounting to more than two-fifths of the country’s GDP. however. and closing a business are all relatively easy.805 per capita Unemployment: 3. Cyprus is ranked 12th out of 41 countries in the European region. or the Cyprus Telecommunications Authority. comp. the central bank has sped the liberalization of capital flows. power utilities.5 billion (2005 estimate) Exports: $7. although its monetary and trade freedom scores are muted by the government’s adherence to the standard EU subsidies of agriculture. and certain sectors of the Cypriot economy are off-limits. The Cypriot financial market is diverse. BACKGROUND: The Greek Cypriot economy is dominated by the service sector.S. cigarettes Imports: $7. business freedom. operating.

5 percent of GDP. FREEDOM FROM GOVERNMENT — 54. including consumption and transfer payments. is independent from government interference. and capital transactions are subject to central bank approval or restrictions. This diminishes the incentive to enroll as unemployed after the end of the entitlement period. the government subsidizes agricultural production.9 84. and the government received 14.CYPRUS’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 70 76. and close a business is relatively well protected by the national regulatory environment. Consequently. two foreign bank branches. MONETARY FREEDOM — 84. and an administrative court). as is the Housing Finance Corporation. but the judiciary has nevertheless caused the government to suffer several embarrassing defeats. government spending equaled 41. including the Supreme Court (which carries out the functions of a constitutional court. The only remaining exceptions involve the acquisition of property and investments in tertiary education and mass media. the international banking sector has had to comply with the same regulatory rules as local banks. Other taxes include a value-added tax (VAT) and a real estate tax.6% Cyprus’s trade policy is the same as those of other members of the European Union. and other market access restrictions. TRADE FREEDOM — 76. 5 percent is deducted from Cyprus’s monetary freedom score to account for these policies. The Cyprus Stock Exchange continues to suffer from lack of trust following a speculative bubble that was encouraged by ineffective regulation. In the most recent year. an additional 20 percent is deducted from Cyprus’s trade freedom score to account for these non-tariff barriers.7% Inflation in Cyprus is relatively low.9% Total government expenditures in Cyprus. PROPERTY RIGHTS — 90% FISCAL FREEDOM — 87. There are also over 300 credit societies. Cyprus ranks 37th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. are high. averaging 2. the central bank is fully independent. and 27 international banking units. The government lifted exchange controls and abolished the interest rate ceiling in 2001. regulatory and licensing restrictions. In compliance with EU requirements. this is not always the case. There are 11 domestic banks. FREEDOM FROM CORRUPTION — 57% Corruption is perceived as present. distorting the prices of agricultural products. Under the constitution. Various non-tariff barriers are reflected in EU and Cypriot policy.7 70 70 90 57 70 0 INVESTMENT FREEDOM — 70% Residents of the European Union are permitted to own 100 percent of local companies and any company listed on the Cyprus Stock Exchange. co-operative savings banks.7 percent. In the most recent year. Some payments.6 87. FINANCIAL FREEDOM — 70% Cyprus’s financial sector is diverse and relatively sound. The top income tax rate is 30 percent.8% Cyprus has a moderate income tax rate and a very low corporate tax rate. In practice. = world average BUSINESS FREEDOM — 70% Establishing a business in Cyprus is relatively easy because regulations have been streamlined in recent years. including agricultural and manufacturing subsidies. a high court of appeal. The common EU weighted average tariff rate was 1. Contracts and property rights are enforced effectively. current transfers. Non-EU investors may now invest freely in most sectors. 154 2007 Index of Economic Freedom . thereby granting national treatment to foreign investors. The government mandates a minimum wage. and other credit institutions that account for 32 percent of total deposits. tax revenue as a percentage of GDP was 28.6 percent of its total revenues from state-owned enterprises and government ownership of property. Unemployment benefits last for only six months. Cyprus has been pursuing policies designed to maintain a favorable business environment and support private initiative.8 54. Existing regulations affecting business are transparent and applied with consistency.7 percent in 2005. L L L L L 50 L L L L L 100 100 = most free. A mandatory earnings-related social security scheme applies to both employed and self-employed individuals. LABOR FREEDOM — 70% The labor market operates under relatively flexible employment regulations that could be improved to enhance employment and productivity growth. Consequently. providing instead a strong incentive to find new work. The Cyprus Development Bank is 88 percent owned by the government. Relatively stable prices explain most of the monetary freedom score. formerly known as offshore banks. The overall freedom to start. Since the end of 2005. but these institutions are minor parts of the banking system. and the top corporate tax rate is 10 percent. operate. either directly or indirectly. Non-resident purchase of real estate is subject to approval.6 percent between 2003 and 2005. the civil judiciary. The government has lifted most capital restrictions and limits on foreign equity participation and ownership. As a participant in the EU’s Common Agricultural Policy.

3 billion 4. chemicals 155 . Government spending is high. such as business freedom.2% 5-yr.5 World Average = 60.7% growth in 2004 3. Its overall score is 0.9 billion Official Development Assistance: Multilateral: $237 million Bilateral: $43 million (2% from the U. As an emerging Eastern European country. which makes it the world’s 31st freest economy. Labor flexibility is fairly high.6 20 0 1995 2007 QUICK FACTS Population: 10. and corruption exists as a minor irritant to commerce. which operate under equal national rules. growth $19.0 billion Primarily machinery and transport equipment. partially reflecting new methodological detail. While this pattern is expected to continue in 2007 and subsequent years. both corporate and income.3 percentage point lower than last year. though the government does maintain a few price supports.2 million GDP (PPP): $198.6 billion Exports: $76. freedom from government. comp. the Czech Republic can improve in several areas.408 per capita Unemployment: 9. Like many other Eastern European countries. How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage.) External Debt: $45. and its overall score is equal to the regional average.7 percent free. There is extensive foreign ownership of banks. and freedom from corruption. The closely tied elections held in June 2006 led the ruling Czech Social Democratic Party to abandon planned structural reforms.8% FDI (net inflow): $3. Economic growth over the past five years has relied heavily on exports to the European Union. ann. the Czech Republic has relatively low top tax rates. Tourism also plays a central role in the country’s economy.S. chemicals. though hiring and firing workers can be costly.6 billion Primarily machinery and transport equipment. according to our 2007 assessment.7% free 100 80 @ @ @ @ @ @ @@ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ 60 40 Europe Average = 67. Inflation is very low. The Czech Republic is ranked 18th out of 41 countries in the European region.CZECH REPUBLIC Rank: 31 Regional Rank: 18 of 41 T he Czech Republic’s economy is 69. BACKGROUND: The Czech Republic separated from Slovakia and became an independent nation in 1993. characteristic of a perhaps overly intrusive regulatory environment. and political deadlock is likely to continue. raw materials and fuels. The country has an extensive banking sector and highly developed financial services. Licensing and bankruptcy procedures are extensive. and minimal government involvement. internal reforms will need to replace mercantilism if real growth is to take place. The economy is 69. raw materials and fuel Imports: $77. The Czech Republic scores highly in financial freedom and monetary freedom and fairly high in fiscal freedom and labor freedom.org/index.8% Inflation (CPI): 2.

can take years to resolve. LABOR FREEDOM — 77. Capital markets are small and lack transparency.2 0 INVESTMENT FREEDOM — 70% Foreign investors can freely establish new joint ventures and participate in existing enterprises. including agricultural and manufacturing subsidies. Other taxes include a value-added tax (VAT). compared to the world average of 48 days.6 percent. Obtaining a business license can be difficult. as the Czech Republic’s labor market is characterized by its rigidity and low labor force mobility. FREEDOM FROM GOVERNMENT — 52. 5 percent is deducted from the Czech Republic’s monetary freedom score to account for these policies. As a participant in the EU’s Common Agricultural Policy.9 percent between 2003 and 2005. Entrepreneurship should be easier for maximum job creation. Various non-tariff barriers are reflected in EU and Czech Republic policy. and closing a business is very difficult. Insurance companies and pension funds are numerous and competitive. a property transfer tax. TRADE FREEDOM — 76. The judiciary is independent. = world average BUSINESS FREEDOM — 61. and dismissing a redundant employee is relatively costly.2% Inflation in the Czech Republic is low. Consequently. Following the 1990s banking crises and subsequent privatization. government spending equaled 44. and other market access restrictions. and close a business is limited by the national regulatory environment.7 86. The common EU weighted average tariff rate was 1. Consequently. General regulatory frameworks are consistent with a market economy.9% The Czech Republic has a moderate income tax rate and a low corporate income tax rate. In the most recent year.2 70 80 70 43 77. are high. Prior authorization is required for issuance of debt securities and money market securities. with significant foreign participation. Foreign-controlled banks accounted for 90 percent of assets in 2005 and are treated the same as domestic banks.6 79. with the exception of farmland or woodland.9 52. The Czech Republic ranks 47th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. MONETARY FREEDOM — 86. In the most recent year.5 percent of its total revenues from state-owned enterprises and government ownership of property. Registration of companies is in the hands of the courts and is sometimes slow and overly complicated. 156 2007 Index of Economic Freedom . FINANCIAL FREEDOM — 80% The Czech Republic’s financial sector is one of the most advanced in Central and Eastern Europe. the government has had minimal direct involvement in the banking sector.CZECH REPUBLIC’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 61. and the top corporate tax rate is 24 percent. distorting the prices of agricultural products. The top income tax rate is 32 percent. and both residents and non-residents may hold foreign exchange accounts.3 percent of GDP.2 76. and the government received 4. including 27 with some foreign ownership. The non-salary cost of employing a worker can be high. Improving labor market flexibility has been a policy priority. FREEDOM FROM CORRUPTION — 43% Corruption is perceived as significant. Foreign persons are not allowed to purchase land. averaging 1. operate. overall tax revenue as a percentage of GDP was 37.2% Starting a business takes an average of 24 days. although decisions may vary from court to court. PROPERTY RIGHTS — 70% Private property is well protected. There were 36 licensed commercial banks at the end of 2005. and a tax on dividends. with as much as 100 percent foreign ownership in both cases.6% Trade policy in the Czech Republic is the same as the policies of other members of the European Union. regulatory and licensing restrictions. There are no restrictions on payments or current transfers. Commercial disputes. FISCAL FREEDOM — 79.7% Total government expenditures in the Czech Republic. Non-banking financial institutions are less developed than the banking sector. and contracts are generally secure. particularly those related to bankruptcy proceedings. L L L L L L L L L L 50 100 100 = most free.7 percent in 2005. A lack of transparency in the government procurement process is an obstacle to foreign tenders for government contracts. but branches or offices of foreign companies may buy local real estate. including consumption and transfer payments. an additional 20 percent is deducted from the Czech Republic’s trade freedom score. the government subsidizes agricultural production.2% The labor market operates under relatively flexible employment regulations that hinder employment and productivity growth. but bureaucracy and red tape are still problems. The overall freedom to start.

ann.4% 5-yr. Denmark is ranked 6th freest among the 41 countries in the European region. and its overall score is well above the regional average. BACKGROUND: Denmark’s economy depends heavily on foreign trade. ships.9 billion Primarily machinery and equipment. Its overall score is 1. but Denmark’s monetary score is lowered somewhat by distortionary EU agricultural subsidies. as it is in many social democracies in the European Union. Denmark scores highly in business freedom. Government spending equals well over 50 percent of GDP. and the overall freedom of business operation (licensing. . fish. windmills Imports: $98.DENMARK Rank: 13 Regional Rank: 6 of 41 D enmark’s economy is 77. As a modern Western democracy. furniture. Starting a business takes only five days.5 World Average = 60. and subsidized care for children and the elderly. comp. and tax revenue collected is correspondingly high.5 billion 1. partially reflecting new methodological detail. compared to the global average of 48 days.4 billion Primarily machinery and instruments.2% FDI (net inflow): –$358. etc. In addition to restraining taxes and reducing immigration.9% growth in 2004 1. Inflation is low. flexibility. although state-owned businesses are few. The economy is 77. The financial markets are transparent.org/index. and the level of corruption is low. The top personal income tax rate is very high. dairy products.4% Inflation (CPI): 1. monetary freedom. however. growth $31. and freedom from corruption.4 percentage points higher than last year. chemicals.6 percent free. consumer goods 157 How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. raw materials and semi-manufactures for industry. Denmark has an efficient. about 23 percent of working-age Danes rely on some kind of government transfer payment. independent judiciary that protects property rights effectively.914 per capita Unemployment: 6. and its private sector is characterized by many small and medium-sized companies. grain and food.) is very high. Denmark could do somewhat better in fiscal freedom and freedom from government. meat and meat products.6% free 100 80 @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @@ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ 60 40 Europe Average = 67. and open to foreign capital and competition. chemicals. addressing the costs and benefits of Denmark’s social welfare system is a major part of the national political agenda. financial freedom.6 20 0 1995 2007 QUICK FACTS Population: 5.9 billion (2005) Exports: $111. which makes it the world’s 13th freest economy. according to our 2007 assessment. The country’s large welfare state provides free public education.53 million Official Development Assistance: Multilateral: None Bilateral: None External Debt: $352.4 million GDP (PPP): $172. property rights. highly developed. lifelong health care coverage.

There are also 18 foreign banks and four Faroese banks operating in Denmark. and other market access restrictions. The legal system is independent of the government and is based on a centuries-old legal tradition. The national payment system is jointly owned by Danish banks. PROPERTY RIGHTS — 90% FISCAL FREEDOM — 55. BUSINESS FREEDOM — 95. Consequently.7 percent of its total revenues from state-owned enterprises and government ownership of property. and secured interests in property are recognized and enforced.1% Total government expenditures in Denmark. the government subsidizes agricultural production. overall tax revenue as a percentage of GDP was 49. The common EU weighted average tariff rate was 1. The banking system is sound if somewhat concentrated. Consequently. and the top corporate tax rate is 28 percent.1 86. The nonsalary cost of employing a worker is low.2 32. The country’s efficient unemployment insurance system is not financed by employers. with the two largest banks accounting for over 70 percent of banking system assets in 2004. or is a nonEU national with a valid residence or business permit. government spending equaled 54. The judiciary is independent and. competitive insurance industry with over 200 companies and 30 pension funds. both fair and efficient. Supervision and regulation are based on EU legislation.7% The labor market operates under relatively flexible employment regulations that could be improved to enhance employment and productivity growth. Ownership restrictions apply to only a few sectors. and the government received 3. including agricultural and manufacturing subsidies. A non-resident may not purchase real estate unless the person formerly resided in Denmark for at least five years. Other taxes include a value-added tax (VAT) and an excise tax. As a participant in the EU’s Common Agricultural Policy. and credit is allocated on market terms and freely available.7 percent between 2003 and 2005. TRADE FREEDOM — 76. including consumption and transfer payments. averaging 1. and closing a business is easy.6% Denmark’s trade policy is the same as the policies of other members of the European Union.2% Denmark has a very high income tax rate and a moderate corporate tax rate. Transparent regulations are applied evenly and efficiently in most cases.8% Inflation in Denmark is low. which can make it difficult for foreign banks to gain access. Obtaining a business license is very simple.8 percent of GDP. The bond market is well developed and one of the world’s largest. In the most recent year. Denmark has a mature.7 percent in 2005. regulatory and licensing restrictions. = world average FINANCIAL FREEDOM — 90% Denmark’s well-developed financial system is open to foreign competition.DENMARK’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 95.7 0 INVESTMENT FREEDOM — 80% Foreign investors are subject to the same laws as domestic investors. foreign direct investment in Denmark may take place without restrictions or prescreening. in general. distorting the prices of agricultural products. are very high. Denmark ranks 4th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. FREEDOM FROM CORRUPTION — 95% FREEDOM FROM GOVERNMENT — 32. Corruption is perceived as almost nonexistent. In the most recent year. It includes written and consistently applied commercial and bankruptcy laws.8 80 90 90 95 74. As a general rule. and dismissing a redundant employee is relatively costless.3 76. 100 L L L L L L L L L L 50 100 = most free. with other foreign banks possessing representative offices. giving the nation a powerful competitive advantage. operate.6 55. The stock market.6 percent. Various non-tariff barriers are reflected in EU and Danish policy. compared to the world average of 48 days. MONETARY FREEDOM — 86. The top income tax rate is 59 percent. The overall freedom to start. The Danish banking sector consists of 176 banks. which participates in a regional integrated network of exchanges that covers all Nordic and most Baltic countries.3% Starting a business takes an average of five days. 158 2007 Index of Economic Freedom . is an EU national working in Denmark. and close a business is strongly protected by the national regulatory environment. LABOR FREEDOM — 74. is highly developed and efficient. Banks may provide services in a wide variety of areas. There are no restrictions on capital transfers. an additional 20 percent is deducted from Denmark’s trade freedom score. 5 percent is deducted from Denmark’s monetary freedom score to account for these distortionary policies.

comp. Ethiopia is responsible for some 88 percent of goods moving through the port. transport equipment.6 percent free.4 percentage points lower than last year. the railway. Djibouti has high levels of fiscal freedom. Djibouti is ranked 29th out of 40 countries in the sub-Saharan Africa region.2% 5-yr. The economy is 52. which makes it the world’s 130th freest economy.993 per capita Unemployment: 50% (2004 estimate) Inflation (CPI): 3.6 @ @ @ @ @ @ @ @ @@ @ @ @@ @ @ @ @ @@ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ 60 40 20 0 1995 2007 QUICK FACTS Population: 0. The top income taxes on individuals and corporations are moderate. and its overall score is slightly lower than the regional average.org/index. Djibouti has few natural resources and a tremendously high unemployment rate. Two-thirds of Djibouti’s population lives in the capital city (also called Djibouti). and monetary freedom. labor freedom. BACKGROUND: President Ismael Omar Guelleh was first elected in 1999 and re-elected in 2005. resulting in a flexible labor market. coffee (in transit) How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. according to our 2007 assessment. chemicals. even when enforced efficiently.0 million (2004 estimate) Primarily foods. Business regulations are extensive.7 World Average = 60.8 million GDP (PPP): $1. Court enforcement of intrusive labor regulations and property rights is clouded by political interference and rampant corruption.S. and foreign military bases. petroleum products 159 .6% free 100 80 Sub-Saharan Africa Average = 54.4 million (15% from the U. Imports: $373. and his party controls all levels of government. Bureaucratic inefficiency and corruption hamper virtually all areas of the economy.DJIBOUTI Rank: 130 Regional Rank: 29 of 40 D jibouti’s economy is 52. Inflation is low. and freedom from corruption.6 billion 3% growth in 2004 2. beverages. Economic development has been hampered by weak business freedom. trade freedom. freedom from government. property rights.0 million (2002 estimate) Exports: $90. hides and skins.1% FDI (net inflow): $33 million (gross) Official Development Assistance: Multilateral: $31 million Bilateral: $42. Employment restrictions are moderate.0 million (2004 estimate) Primarily re-exports. Most of those who live outside the capital city are engaged in nomadic subsistence and were severely affected by drought and famine in 2006. ann.) External Debt: $366. Its service-based economy is centered on port facilities. Its overall score is 2. partially reflecting new methodological detail. growth $1. but the government does try to control some consumer prices.

overall tax revenue as a percentage of GDP was 20. averaging 3 percent between 2003 and 2005. Commercial banks generally provide only short-term financing and lending. L L L L L 50 L L L L L 100 100 = most free.5 0 INVESTMENT FREEDOM — 50% Djibouti has no major laws that discourage incoming foreign investment. but dismissing a redundant employee can be relatively costly. The top income tax rate is 30 percent. It is estimated that more than 80 percent of enterprises are within the informal and semi-informal sector. are state-owned and not currently open to investors. FINANCIAL FREEDOM —60% Djibouti’s financial sector consists primarily of a small banking system. PROPERTY RIGHTS — 30% Protection of private property rights is weak. an additional 20 percent is deducted from Djibouti’s trade freedom score to account for these non-tariff barriers. higher import taxes for some products. In the most recent year. Other taxes include a property tax and an excise tax. FISCAL FREEDOM — 87% Djibouti has moderate tax rates. The government has a 49 percent minority stake in Banque pour le Commerce et l’Industrie-Mer Rouge.” water. are high. Consequently. and the top corporate tax rate is 25 percent. and there are no restrictions on payments or transfers. A lack of transparency and the inconsistent application of the commercial code discourage entrepreneurial activities.4% Total government expenditures in Djibouti. including a large number of informal microenterprises that play a key role in the economy. TRADE FREEDOM — 26. Non-tariff barriers include import and export bans. In the most recent year. There is also an Ethiopian bank. and urban transport are subject to price controls.4 87 53. two of which are dedicated to civil servants and the military. Much of Djibouti’s GDP is produced by the state. and the Interior Ministry will issue an investor visa only to a licensed business.6 percent. and the enforcement of contracts can be time-consuming and cumbersome. The government owns principal public utilities and infrastructures including water. Djibouti has written commercial and bankruptcy laws. FREEDOM FROM GOVERNMENT — 53. Relatively stable prices explain most of the monetary freedom score. an additional 10 percent is deducted from Djibouti’s monetary freedom score. electricity. LABOR FREEDOM — 73. A Development Fund for Djibouti was authorized by the government in 2001 but is still not operational. The Finance Ministry will issue a license only if an investor possesses an approved investor visa.4 79 50 60 30 30 73. and market access restrictions in the services sector. MONETARY FREEDOM — 79% Inflation in Djibouti is moderate.4% Djibouti’s average tariff rate was 26. electricity.8 percent in 2002. and close a business is seriously limited by the national regulatory environment. most notably public utilities. but entrepreneurship is hindered in other ways. and the port. but it focuses on international transactions for Ethiopian customers. including consumption and transfer payments. the railway. Bureaucratic procedures are complicated. and little formal economic activity occurs outside of the capital city of Djibouti. Both residents and non-residents may hold foreign exchange accounts. but they are not applied consistently. A law against money laundering was adopted in 2002. The non-salary cost of employing a worker is moderate. The courts are frequently overburdened.5 percent of GDP. FREEDOM FROM CORRUPTION — 30% Most economic activity still occurs informally. = world average BUSINESS FREEDOM — 37% Starting a business takes an average of 37 days. compared to the world average of 48 days. telecommunications. Much of Djibouti’s trade with neighboring countries is informal.DJIBOUTI’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 37 26. operate. but certain sectors. Corruption is a problem in trials and judicial proceedings. Both obtaining a business license and closing a business can be very difficult. The overall freedom to start. There are no capital markets.5% The labor market operates under relatively inflexible employment regulations that hinder employment and productivity growth. 160 2007 Index of Economic Freedom . Political manipulation undermines the credibility of the judicial system. The government imposes controls on all credit transactions between residents and non-residents. Regulations on increasing or contracting the number of work hours can be rigid. Consequently. “common bread. The government also influences prices through the regulation of state-owned enterprises. Goods and services such as medicines. Two majority-owned or fully owned French banks account for 95 percent of deposits and 85 percent of credit. The pension system consists of three funds. government spending equaled 36. postal services. telecommunications.

6 20 0 1995 2007 QUICK FACTS Population: 8. and closing a business is costly and difficult. Growth has surged. and its overall score is slightly lower than the regional average. The economy is 56. and freedom from corruption and somewhat low in business freedom and labor freedom. meats. the country suffers from an inefficient legal system that lacks resources and personnel and from deteriorated infrastructure. comp. and public administration is inefficient and corrupt.0% growth in 2004 3.5% (2004 estimate) Inflation (CPI): 51.DOMINICAN REPUBLIC Rank: 100 Regional Rank: 23 of 29 T he Dominican Republic’s economy is 56. BACKGROUND: The Dominican Republic has been undemocratic for much of its history as an independent country.449 per capita Unemployment: 17. according to our 2007 assessment. coffee. Personal and corporate tax rates are moderate.2% 5-yr. The Dominican Republic receives high scores in fiscal freedom and freedom from government. chemicals. although regular competitive elections have taken place since 1996.5% FDI (net inflow): $645.1 percentage point higher than last year.3 billion Primarily ferronickel. gold. The Dominican Republic is ranked 23rd out of 29 countries in the Americas.0 billion Exports: $9. The Dominican Republic scores poorly in financial freedom. silver.3 billion 2.org/index. petroleum. Starting a business takes far longer than the international average. The weak application of commercial law means that private property is subject to adjudication based on political interference and corruption. and overall tax revenue is not particularly high as a percentage of GDP. and niche-market producers have begun to appear. pushed for his country’s entrance into the Dominican Republic–Central America Free Trade Agreement (DR– CAFTA).7% free 100 80 @ @ @ @ @ @ @ @ @@ @ @ @ @ @@ @ @ @ @ @ @@ @ @ @ @ @ @ @ @ @ @ @ @ @ @@ 60 40 Americas Average = 62. which makes it the world’s 100th freest economy. including frequent electrical outages. President Leonel Fernández. pharmaceuticals 161 . growth $7. Failure to recover from scandals in the financial sector reflects the rudimentary level of banking operations. elected in 2004.3 World Average = 60. tobacco.0 billion Primarily food. under which greater trade and economic freedom will benefit the population.1 million (gross) Official Development Assistance: Multilateral: $33 million Bilateral: $127 million (23% from the U. How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage.7 percent free.8 million GDP (PPP): $65.) External Debt: $7. cotton and fabrics. cocoa. Its overall score is 0.S. However. sugar. partially reflecting new methodological detail. and revenue from state-owned businesses is not large. Over-regulation hampers business and labor market flexibility. consumer goods Imports: $9. Government expenditures are likewise moderate. ann. property rights.

1 percent. including three foreign-owned banks.5 91.6 percent of its total revenues from state-owned enterprises and government ownership of property. an additional 10 percent is deducted from the Dominican Republic’s monetary freedom score. FREEDOM FROM GOVERNMENT — 91. Consequently.9 0 some agricultural products and electricity generation. and activities related to defense and security. but dismissing a redundant employee is costly.6% Starting a business takes an average of 73 days. Entrepreneurship should be easier for maximum job creation. FINANCIAL FREEDOM — 40% The Dominican Republic’s small financial sector is poorly supervised and regulated. and discretionary import licenses are required for most agricultural products.6 63. The insurance sector included 23 companies in 2004. Despite recent judicial reforms.9% The labor market operates under restrictive employment regulations that hinder employment and productivity growth. documentation. Regulations are still burdensome and unstable. FREEDOM FROM CORRUPTION — 30% Corruption is perceived as significant. Standards can be cumbersome. operate. Problems involving the enforcement and protection of intellectual property rights add to the cost of trade. The non-salary cost of employing a worker is moderate. Other taxes include a value-added tax (VAT) and a tax on dividends. government spending equaled 18. Capital markets are small and underdeveloped.2 50 40 30 30 54. Foreign direct investment is permitted in all sectors except the disposal and storage of toxic. L L L L L L L L L L 50 100 INVESTMENT FREEDOM — 50% Foreign investment is generally welcomed. The government can expropriate property arbitrarily.DOMINICAN REPUBLIC’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 57. and bureaucratic red tape is common. Offshore banking activities are growing. FISCAL FREEDOM — 86.2% Although inflation in the Dominican Republic fell significantly between 2004 and 2005.9 percent per year. averaging 17. Corruption and a lack of transparency characterize most of the trade process. and the government received 2. There is no screening of foreign investment. are low. 100 = most free. and five state-owned banks. Financial sector assets are largely controlled by the 12 multiple service banks. especially for importers. Both the top income tax rate and the top corporate tax rate are 30 percent.5% The Dominican Republic has moderate tax rates. Dominican and foreign business leaders have complained that judicial and administrative corruption affects the settlement of business disputes. compared to the world average of 48 days. In the most recent year. and trading is slight. an additional 20 percent is deducted from the Dominican Republic’s trade freedom score to account for these non-tariff barriers. but investments must be registered with the Central Bank of the Dominican Republic. or reporting requirements. The government applies price controls to electricity and fuel and provides subsidies for 162 2007 Index of Economic Freedom . MONETARY FREEDOM — 63. Ten companies control 85 percent of the markets. and close a business is limited by the national regulatory environment. the country’s second largest bank. = world average BUSINESS FREEDOM — 57. The Dominican Republic ranks 85th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. Confidence has been shaky since the crisis spurred by the 2003 collapse of Banco Intercontinental (Baninter). including consumption and transfer payments.5 63. it was relatively high between 2003 and 2005. Consequently.1 percent in 2004. LABOR FREEDOM — 54. Relatively high and unstable prices explain most of the monetary freedom score. but closing a business can be very difficult. as interpretation of the commercial code is often arbitrary. Obtaining a business license is relatively simple.8% The Dominican Republic’s weighted average tariff rate was 8.8 86. Public skepticism was affirmed by a 2005 revelation that the head of the board of directors of the fifth largest bank had misappropriated funds. Some capital transactions are subject to approval. activities that affect public health or the environment. but some laws discriminate between domestic and foreign investments. overall tax revenue as a percentage of GDP was 15. Payments and transfers are subject to documentation requirements. PROPERTY RIGHTS — 30% The court system is inefficient. In the most recent year.1 percent of GDP. TRADE FREEDOM — 63. hazardous. Residents and non-residents may hold foreign exchange accounts.5% Total government expenditures in the Dominican Republic. There are rigid restrictions on increasing and contracting working hours. The overall freedom to start. or radioactive waste. Customs implementation is burdensome and lacks transparency.

3% free 100 80 @ @ @ @ @ @@ @@ @ @@ @ @ @@ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @@ Ecuador receives high scores for fiscal freedom and freedom from government.3 percentage point lower than last year.6 20 0 1995 2007 QUICK FACTS Population: 13 million GDP (PPP): $51. The dollarization of Ecuador’s economy imposed some order.3 billion Primarily vehicles. Feuding political factions have made consensus in the national legislature elusive and have contributed to the ouster of three presidents in the past decade. The judiciary often makes erratic judgments and is subject to corruption.2% 5-yr. Government expenditures are less than 25 percent of GDP.7% FDI (net inflow): $1. partially reflecting new methodological detail. and production is dwindling.3 World Average = 60. growth $3. and business freedom. The rule of law is politically influenced and inefficient. and its overall score is much lower than the regional average. 60 40 Americas Average = 62. and outright expropriation of private property is a constant concern. property rights. 163 . Ecuador scores particularly poorly in its investment freedom. It has moderate personal and corporate tax rates (although there are other taxes). have deterred foreign investment. Ecuador is ranked 24th out of 29 countries in the Americas. BACKGROUND: Ecuador has ample petroleum reserves and is the world’s largest banana exporter. which makes it the world’s 108th freest economy. bananas.ECUADOR Rank: 108 Regional Rank: 24 of 29 cuador’s economy is 55. and the percentage of revenue from state-owned businesses is relatively low. Its overall score is 0. As of August 2006. but other problems.org/index.9% growth in 2004 4. and overall tax revenue is not excessively high as a percentage of GDP. shrimp Imports: $9.2 billion (gross) Official Development Assistance: Multilateral: $33 million Bilateral: $247 million (33% from the U. ann. including thousands of conflicting laws that result in an uncertain application of justice. telecommunications equipment. negotiations for a free trade agreement with the United States had been suspended.7 billion 6. Starting a business and closing a business can be difficult. freedom from corruption. comp. labor freedom. according to our 2007 assessment.) External Debt: $16.S.963 per capita Unemployment: 11% Inflation (CPI): 2.9 billion Exports: $8.7 billion Primarily petroleum. cut flowers. E The economy is 55. electricity How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. medicinal products. Heavy regulation hurts business and labor flexibility. Mismanagement and corruption plague the governmentrun oil industry.3 percent free.

averaging 3 percent between 2003 and 2005. Businesses are subject to complex bureaucratic rules and the inconsistent application of commercial laws. FREEDOM FROM CORRUPTION — 25% Corruption is perceived as widespread.7 percent of GDP. The government applies price bands for some agricultural products.ECUADOR’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 57. dollar as its legal tender. operate. controls the prices of electricity.2 74. and implements subsidies for public transportation and cooking gas. The state controlled 11 percent of bank assets in 2005. The government has increased financial sector regulations in the wake of the crisis. mining. dollar is the official currency. telecommunications. overall tax revenue as a percentage of GDP was 29. LABOR FREEDOM — 44. and national security sectors. and close a business is restricted by the national regulatory environment. The non-salary cost of employing a worker is moderate. 25 commercial banks (one of them state-run) were operating. compared to the world average of 48 days. Obtaining a business license is relatively simple. an additional 15 percent is deducted from Ecua- 164 2007 Index of Economic Freedom . but cumbersome labor laws and a lack of contract enforcement severely hamper both foreign and domestic investment.S. coastal and border real estate. In addition. The overall freedom to start. MONETARY FREEDOM — 74. the central bank is no longer the lender of last resort. FREEDOM FROM GOVERNMENT — 85. 36 co-operatives. the requirement that firms receive prior authorization from various government agencies before importing most commodities. rulings are inconsistent. There are no restrictions on foreign exchange accounts.2% The labor market operates under highly restrictive employment regulations that hinder employment and productivity growth. = world average BUSINESS FREEDOM — 57. and the government received 1.7% Ecuador has moderate tax rates.2% Total government expenditures in Ecuador. L L L L L L L L L L 50 100 INVESTMENT FREEDOM — 30% Ecuadorian foreign investment law grants foreign firms national treatment. Entrepreneurship should be easier for maximum job creation. Processing delays are significant. Ecuador ranks 117th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. There are two stock markets. Non-tariff barriers include restrictive requirements for import licensing. broadcast media. Both the top income tax rate and the top corporate tax rate are 25 percent. In the most recent year.1% Ecuador uses the U. and arbitrary and cumbersome regulations and customs procedures. and the courts are subject to corruption. including consumption and transfer payments. Because the U. In 2005. but dismissing a redundant employee can be very costly.S. electricity. Consequently. FINANCIAL FREEDOM — 60% Ecuador’s financial system is still recovering from a late 1990s banking crisis that spurred government default on foreign bonds and the takeover of many banks. Many government officials use regulatory schemes and questionable legal interpretations to solicit bribes from and otherwise take advantage of foreign investors. Ecuador’s labor market flexibility is one of the lowest 20 in the world. PROPERTY RIGHTS — 30% FISCAL FREEDOM — 85. but closing a business can be very difficult. import bans. which explains most of the monetary freedom score.1 62 85. Expropriation is possible. telecommunications services. TRADE FREEDOM — 62% Ecuador’s weighted average tariff rate was 9 percent in 2004. Consequently. The government maintains restrictions in the petroleum exploration and development. A number of foreign and local investors have experienced agricultural land seizures by squatters over the years.8 percent.1% Starting a business takes an average of 65 days. direct investment. and pharmaceuticals. Other taxes include a value-added tax (VAT) and a capital gains tax. 100 = most free. there are 11 finance companies. and five mutual finance companies.1 30 60 30 25 44.7 85. Foreign takeovers of limited partnership banks and insurance companies are restricted. down from 40 in 1998.7 percent of its total revenues from state-owned enterprises and government ownership of property. The insurance sector consists of 43 companies. an additional 20 percent is deducted from Ecuador’s trade freedom score to account for these non-tariff barriers. government spending equaled 24.2 0 dor’s monetary freedom score to adjust for measures that distort domestic prices. domestic fishing. Inflation is relatively low. Most trading involves government debt. In the most recent year. judgments are unpredictable. Weak rule of law is a significant problem for entrepreneurs in Ecuador. are low. and the eight largest control a majority of policies. Many employers often resort to short-term outsourcing contracts because job tenure regulations make it hard to terminate employment. or current transfers. issues involving the enforcement and protection of intellectual property rights.

6 million GDP (PPP): $305. energy. and privatized several enterprises.2% free 100 80 @ @ Mideast/North Africa Average = 57. 60 40 20 0 1995 2007 QUICK FACTS Population: 72. wood products. food. cotton. the government reduced personal and corporate tax rates. In 2005. 165 . The top income and corporate tax rates are impressively low. and its freedom from government and monetary freedom also score reasonably well. Fiscal freedom is rated highly. Business freedom.2 World Average = 60. chemicals Imports: $26.3% FDI (net inflow): $1. Its overall score is 1 percentage point higher than last year.3 billion Exports: $26. Licensing. ann. according to our 2007 assessment. although Egypt receives a significant part of its income from state-owned businesses. chemicals. E The economy is 53.1% growth in 2004 3.org/index.6 billion (58% from the U.EGYPT Rank: 127 Regional Rank: 13 of 17 gypt’s economy is 53. BACKGROUND: Egypt is the most populous Arab country and a major force in Middle Eastern affairs. Fairly high tariff rates and nontariff barriers impede trade and foreign investment alike. cut energy subsidies. metal products. or closing a business is difficult and heavily regulated by an intrusive bureaucracy.1 billion Official Development Assistance: Multilateral: $349 million Bilateral: $1.9% 5-yr. and other key commodities.5 billion Primarily crude oil and petroleum products. partially reflecting new methodological detail.9 billion Primarily machinery and equipment. Egypt could improve in several areas. textiles. a technocrat who has placed liberal reformers in key positions.S.6 @@ @ @ @ @ @@ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @@ @ @ @ @ @ @ @ @ @ @ @ Egypt’s economy scores well in a few of the 10 factors of economic freedom.2 percent free. Corruption is rampant. Total government expenditures are moderately low. operating. and its overall score is slightly lower than the regional average.211 per capita Unemployment: 10. Economic reform has become a higher priority under Prime Minister Ahmed Nazif. and the fair adjudication of property rights cannot be guaranteed. the government until recently has emphasized such social policies as maintaining the payment of subsidies on food. Egypt country is ranked 13th out of 17 countries in the Middle East/North Africa region. property rights. which makes it the world’s 127th freest economy. and government tax revenue relative to GDP is not high.) External Debt: $30.9 billion 4. and corruption are all serious problems.0% Inflation (CPI): 11. however. growth $4. comp. Although President Hosni Mubarak’s government has undertaken incremental reforms to liberalize the socialist economic system that has hampered economic growth since the 1950s. fuels How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. financial freedom.

and Oases). transport. all projects must pass through a review process to gain legal status and qualify for incentives.2 93. = world average BUSINESS FREEDOM — 39. and the government has sold its shares in some private banks. automatic approval should be granted to most investment projects. an additional 20 percent is deducted from Egypt’s trade freedom score to account for these non-tariff barriers. local contractual arrangements are generally secure. Customs corruption also adds to the cost of trade. but the Napoleonic Code exerts a significant influence.8% The government has made gradual progress toward a more competitive and flexible labor market. There were 21 insurance companies in 2004. including 41 Egyptian financial institutions and 11 foreign banks. There are rigid restrictions on increasing or contracting working hours.9% Starting a business takes an average of 19 days. it takes six years to decide commercial cases. There are no restrictions on payments and transfers. 52 banks were licensed. an additional 15 percent is deducted from Egypt’s monetary freedom score to adjust for measures that distort domestic prices. and medicine. energy (including fuel). Relatively high and unstable prices explain most of the monetary freedom score. Nevertheless. Islamic law (Sharia) is officially the main inspiration for legislation. and appeal procedures can extend court cases beyond 15 years. Both obtaining a business license and closing a business are very difficult.6% Egypt has implemented cuts in personal income and corporate tax rates since June 2005. Foreign investment in Sinai. On average. The smallest state bank was approved for sale in 2006.4 percent between 2003 and 2005. The non-salary cost of employing a worker can be high.8 percent. Entrepreneurship should be easier for maximum job creation.7 percent of GDP. and the government received 29. Foreign ownership of insurance companies and banks is permitted.4 percent of its total revenues from state-owned enterprises and government ownership of property. and dismissing a redundant employee is costly. In 2005. MONETARY FREEDOM — 69% Inflation in Egypt is relatively high. Consequently. adopting a new labor code in recent years. and new banks face significant constraints. Delta. and close a business is seriously limited by the national regulatory environment. including consumption and transfer payments.9 52. Foreign ownership of areas designated as agricultural lands (in the Nile Valley. Egypt ranks 70th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. L L L L L L L L L L 50 100 INVESTMENT FREEDOM — 50% In theory. averaging 6. Non-performing loans are a significant problem. including four state-owned firms that dominate the sector and another state-owned reinsurance company. sugar and pharmaceuticals.6% Total government expenditures in Egypt. The Capital Market Authority must approve bond issues. FINANCIAL FREEDOM — 30% Egypt’s financial sector is characterized by a strong state presence. and tobacco requires approval from the relevant ministries. The government controls prices for some basic foods. the labor market still operates under restrictive employment regulations that hinder employment and productivity growth. in practice. the massive size of the public sector limits the private sector’s ability to set market prices.6 73. operate. Both the top income tax rate and the top corporate tax rate are 20 percent. Consequently. 166 2007 Index of Economic Freedom . In general. compared to the world average of 48 days. The government has established a “one-stop-shop” for investment procedures and has moved to revamp the regulatory environment in recent years. The four large state-owned banks controlled about 50 percent of banking sector assets in 2004. FREEDOM FROM CORRUPTION — 34% Corruption is perceived as significant. TRADE FREEDOM — 52. and cumbersome regulatory and customs procedures. except for desert reclamation projects. Other taxes include a value-added tax (VAT) and a property tax. military products. Capital markets are large for the region.9 percent in 2002. It also implements subsidies for basic food items.2% Egypt’s weighted average tariff rate was 13. and subject to political pressure. but bureaucracy still remains meddlesome. is prohibited. However. burdensome and non-transparent sanitary and phytosanitary measures. costly. FREEDOM FROM GOVERNMENT — 73. LABOR FREEDOM — 49. PROPERTY RIGHTS — 40% FISCAL FREEDOM — 93. Non-tariff barriers include import restrictions and import bans. The overall freedom to start. Judicial procedures tend to be protracted.8 0 and public transportation. The government has been pushing forward the sale of non-strategic and smaller companies.EGYPT’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 39. 100 = most free. The government sometimes circumvents the independence of the judiciary by using fast-track military courts. government spending equaled 26. Both residents and non-residents may hold foreign exchange accounts. In the most recent year. overall tax revenue as a percentage of GDP was 12. are moderate.6 69 50 30 40 34 49. In the most recent year.

petroleum.3 percent free. Reform will be aided by El Salvador’s participation in the Dominican Republic–Central America Free Trade Agreement (DR–CAFTA) with the United States. El Salvador is ranked 7th out of 29 countries in the Americas.5% (2005 estimate) Inflation (CPI): 4. capital goods. Other freedoms are merely average. though with slightly less vigor. though firing an employee can be costly. and overall tax revenue is not high as a percentage of GDP. textiles.EL SALVADOR Rank: 29 Regional Rank: 7 of 29 l Salvador’s economy is 70.3 World Average = 60. sugar. and freedom from corruption. comp. including business freedom. shrimp. dollar. electricity Imports: $7. the country still suffers from a weak justice system. President Elias “Tony” Saca.3 billion Primarily offshore assembly exports. How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. food. BACKGROUND: Since the signing of a 1992 peace accord between the government and guerrillas. Personal and corporate tax rates are low. Government expenditures are less than 15 percent of GDP. coffee.5% FDI (net inflow): $458.S. and monetary freedom. 60 40 Americas Average = 62. growth $5.3% free 100 80 @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @@ El Salvador receives high scores for fiscal freedom. Excessive regulation hampers business operations. as it can often neither enforce its rulings nor rule in a consistently impartial manner.8 million GDP (PPP): $34. and rising violence associated with transnational youth gangs. E The economy is 70. according to our 2007 assessment. The country’s inefficient judiciary is a major deterrent to foreign investors.7 percentage point lower than last year.3 billion Exports: $4.S.041 per capita Unemployment: 6. fuels. However.0 billion Primarily raw materials. continues to pursue the free-market policies of his National Republican Alliance party.org/index. and its overall score is notably higher than the regional average.5% growth in 2004 1. and stateowned businesses account for less than 1 percent of total revenues. with three years left in his five-year term. electricity 167 . El Salvador’s political parties have moderated their positions to cooperate on political and economic reforms.1 billion 1.9% 5-yr. Corruption is also prevalent. partially reflecting new methodological detail. ann.5 million Official Development Assistance: Multilateral: $38 million Bilateral: $228 million (55% from the U. poor education. Its overall score is 0. property rights. which makes it the world’s 29th freest economy. consumer goods.) External Debt: $7. Inflation is also low thanks to a currency pegged to the U. labor freedom. but the government does distort prices on certain staples through price controls.6 20 0 1995 2007 QUICK FACTS Population: 6. freedom from government. chemicals. The labor market is fairly flexible.

is cited as one of the main constraints on doing business. The non-salary cost of employing a worker is low. Banks are allowed to offer a wide range of financial services. averaging 4. certain services. operate. TRADE FREEDOM — 66. and two foreign bank branches. two of which were foreignowned. The course of some cases has shown that the legal system is subject to manipulation by private interests. government spending equaled 14. PROPERTY RIGHTS — 50% Property rights are moderately well protected in El Salvador. Lawsuits move very slowly and can be costly and unproductive. are low.7 70 70 50 42 79. LABOR FREEDOM — 79. both obtaining a business license and closing a business can be difficult. and canals require government approval.6% Starting a business takes an average of 26 days.9 95.6% El Salvador’s weighted average tariff rate was 6. but dismissing a redundant employee is relatively costly. an additional 20 percent is deducted from El Salvador’s trade freedom score to account for these non-tariff barriers. There are some restrictions on land ownership. Consequently. In the most recent year. export subsidies. Although El Salvador has made significant progress in reducing onerous regulations in recent years. FINANCIAL FREEDOM — 70% The Salvadoran financial sector has experienced significant liberalization since the 1990s and is home to some of the region’s largest banks. Both the top income tax rate and the top corporate tax rate are 25 percent. Consequently. there were nine private commercial banks.7 percent in 2005. Non-bank financial institutions are limited. Corruption is perceived as significant. and the government received 0.1% Total government expenditures in El Salvador. El Salvador ranks 51st out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. Regulations on banks are open and transparent. Investments in railroads. Non-tariff barriers include import quota systems on rice and pork. Private banks controlled nearly 96 percent of bank assets in August 2005. piers. L L L L L L L L L L 50 100 100 = most free.7% Inflation in El Salvador is moderate. Relatively moderate prices explain most of the monetary freedom score. FREEDOM FROM CORRUPTION — 42% FREEDOM FROM GOVERNMENT — 95. petroleum. two state-owned banks. and final rulings are sometimes not enforced. The stock exchange participates in a regional association of stock exchanges. and implements subsidies for diesel. The inefficiency of the judiciary. and liquid propane gas. including electricity.1 76. an additional 10 percent is deducted from El Salvador’s monetary freedom score to adjust for measures that distort domestic prices. 168 2007 Index of Economic Freedom . along with crime. MONETARY FREEDOM — 76. access to foreign exchange. Entrepreneurship should be easier for maximum job creation. There are rigid restrictions on increasing or contracting the number of working hours.2 0 INVESTMENT FREEDOM — 70% El Salvador maintains an open foreign investment climate.EL SALVADOR’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 62. In 2005. The overall freedom to start. and close a business is restricted by the national regulatory environment.2% The labor market operates under relatively flexible employment regulations that could be improved to enhance employment and productivity growth. Interest rates are set by the market. Foreign banks and insurance companies receive national treatment. overall tax revenue as a percentage of GDP was 11 percent.5 percent of its total revenues from state-owned enterprises and government ownership of property.4 percent between 2003 and 2005. Foreign investors may obtain credit in the local financial market under the same conditions as local investors. compared to the world average of 48 days. and fishing. foreign persons may purchase land. The government controls the prices of some goods. Other taxes include a value-added tax (VAT) and a tax on insurance contracts. discriminatory sanitary practices on poultry. and foreign investors receive equal treatment. and a few other discriminatory applications of standards. only if there is a reciprocal arrangement with their home country. FISCAL FREEDOM — 90. or most capital transactions. = world average BUSINESS FREEDOM — 62. including consumption and transfer payments. The government limits foreign direct investment in commerce.6 66. industry.3 percent of GDP.6 90.9% El Salvador has relatively low tax rates. In the most recent year. up to 245 hectares. There were 18 insurance companies in 2004. There are no controls or requirements on current transfers.

Business freedom.6 @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @@ @ @ Equatorial Guinea does not rank strongly in any category. Equatorial Guinea is ranked 27th out of 40 countries in the sub-Saharan Africa region.2% free 100 80 Sub-Saharan Africa Average = 54.org/index.EQUATORIAL GUINEA Rank: 128 Regional Rank: 27 of 40 quatorial Guinea’s economy is 53.0 million (2005 estimate) Exports: $4. Teodoro Obiang Nguema Mbasogo has been elected president in 1982 and re-elected to a fourth seven-year term in 2002. according to our 2007 assessment. trade freedom.2 percent free.5 billion (2004 estimate) Primarily petroleum sector equipment. E The economy is 53. Its overall score is 3 percentage points higher than last year. and tax revenue is not large as a percentage of GDP. and business operations are significantly hampered by red tape.) External Debt: $353. ongoing problems include a dysfunctional judiciary.4% growth in 2004 30. other equipment How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. timber. unclear regulation. The average tariff rate is high. Obiang and his advisers maintain tight control of the military and the government. Inflation is relatively low because the currency is pegged to the euro. self-imposed economic barriers. Equatorial Guinea is beset by serious.7 billion (gross) Official Development Assistance: Multilateral: $9 million Bilateral: $42 million (0. growth $50. 60 40 20 0 1995 2007 QUICK FACTS Population: 0. and corruption. partially reflecting new methodological detail. which makes it the world’s 128th freest economy. and income has risen sharply as a result of increased crude oil production. and fishing. and freedom from corruption are weak.8% FDI (net inflow): $1.6 billion (2004 estimate) Primarily petroleum. and its overall score is equal to the regional average. Oil and gas dominate the economy. and corruption is rampant.7 World Average = 60. comp.1% 5-yr. Property rights are not secured by an independent judiciary. Both the top income tax rate and the top corporate tax rate are a high 35 percent. property rights. cocoa Imports: $1. Despite laws providing for an open investment and trade regime. hunting. investment freedom. and the inefficient and corrupt bureaucracy makes the customs process difficult. methanol. 169 .7 billion (2005 estimate) 32. Regulations are burdensome. BACKGROUND: Since seizing power in 1979.200 per capita (2005 estimate) Unemployment: 30% (1998 estimate) Inflation (CPI): 3. Government management of oil wealth lacks transparency.5 million GDP (PPP): $25. ann.S.1% from the U. Government expenditures rely heavily on income from state-owned businesses (mainly oil). but most of the population is still engaged in subsistence farming.

L L L L L L L L L L 50 100 100 = most free. 170 2007 Index of Economic Freedom .4 0 INVESTMENT FREEDOM — 30% The investment code.3 30 60 30 19 57. = world average BUSINESS FREEDOM — 44. Inflation in Equatorial Guinea is relatively high. Monaco. and Comoros are subject to restrictions. including consumption and transfer payments. are moderate. Relatively unstable prices explain most of the monetary freedom score. Consequently. Equatorial Guinea ranks 152nd out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. government spending equaled 23 percent of GDP. A burdensome and corrupt customs process remains an important non-tariff barrier to trade. overall tax revenue as a percentage of GDP was 15. and the government provides export subsidies for cocoa.6% Equatorial Guinea’s weighted average tariff rate was 16. and transfers to countries other than France. In the most recent year. is extremely bureaucratic in practice and open to manipulation.7% Starting a business takes an average of 136 days—almost three times longer than the world average of 48 days. Residents and non-residents may hold foreign exchange accounts. The government sets the price of electricity and subsidizes both electricity and cocoa production.7 47.2 percent in 2005. all of which are primarily foreign-owned. and dismissing a redundant employee is costly. Equatorial Guinea uses the CFA franc. Compliance with banking regulations is mixed. Corruption is perceived as widespread. PROPERTY RIGHTS — 30% Senior government officials sometimes extort money from foreign companies. Obtaining a business license is difficult.8% Total government expenditures in Equatorial Guinea. members of the CEMAC. operate. FINANCIAL FREEDOM — 60% Equatorial Guinea’s financial system is small and underdeveloped. an additional 5 percent is deducted from Equatorial Guinea’s monetary freedom score to adjust for measures that distort domestic prices.6 82. A fourth bank had its license approved in 2004 and began operation in 2005. TRADE FREEDOM — 47. The overall freedom to start. averaging 6.8 79. an additional 20 percent is deducted from Equatorial Guinea’s trade freedom score to account for these non-tariff barriers. Both the top income tax rate and the top corporate tax rate are 35 percent.3% As a member of the Central African Economic and Monetary Community (CEMAC). but approval is required for resident accounts held domestically.6 percent of its total revenues from state-owned enterprises and government ownership of property. threatening to take away concessions. and the government received 17. Corruption and lax enforcement of investment law are serious impediments to investment. Capital transactions. There are rigid restriction on increasing and contracting the number of working hours.4% The labor market operates under restrictive employment regulations that hinder employment and productivity growth.1 81. Equatorial Guinea is a member of OHADA (Organisation pour l’Harmonisation en Afrique du Droit des Affaires). while liberal in intent. The banking sector consists of three main banks. Entrepreneurship should be easier for maximum job creation. FISCAL FREEDOM — 82.4 percent. pegged to the euro. In the most recent year. Consequently. and the number of non-performing loans has increased in recent years. and close a business is seriously restricted by the national regulatory environment. Lack of transparency and uneven application of commercial regulations are still major problems. LABOR FREEDOM — 57.1% Equatorial Guinea has high tax rates. and closing a business is very difficult. The government maintains minority ownership in two banks. consisting of three insurance companies and one reinsurance company. Equatorial Guinea has no stock exchange or securities market. Foreign investors are required to obtain a local partner. payments. a regional organization that trains judges and lawyers in commercial law to help reform the enforcement of contracts. The Commission Bancaire de L’Afrique Centrale (COBAC) has acted as Equatorial Guinea’s central bank since the country joined the franc zone in 1985.2 percent between 2003 and 2005. FREEDOM FROM CORRUPTION — 19% FREEDOM FROM GOVERNMENT — 81. MONETARY FREEDOM — 79.EQUATORIAL GUINEA’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 44. The judicial system is open to political influence. The non-salary cost of employing a worker is high. The insurance sector is very small. members of the West African Economic and Monetary Union.

food. according to our 2007 assessment. Inflation is fairly low. textiles. and business regulation is efficient. and the labor market is unnecessarily rigid.0% FDI (net inflow): $668. Investment is easy but subject to government licensing in some areas of the economy. Estonia is ranked 5th out of 41 countries in the European region. which makes it the world’s 12th freest economy.1 percent free.555 per capita Unemployment: 9. ann. but Estonia’s monetary freedom score is hurt by the European Union’s agricultural subsidies.5 World Average = 60. growth $14. Estonia has been one of the most radical reformers among the former Soviet nations and has transformed itself into one the world’s most dynamic and modern economies. furniture. will remain in office until the 2007 elections.1% free 100 80 @ @ @@ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ Estonia scores highly in investment freedom.) External Debt: $10. Total government spending is high (although in line with other EU economies).S. The judiciary. textiles.7 billion Primarily machinery and equipment. fiscal freedom.8 billion Primarily machinery and equipment.6 million Official Development Assistance: Multilateral: $109 million Bilateral: $27 million (11% from the U. transportation equipment How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. financial freedom. should be a model for developing nations. 171 . The top income and corporate tax rates are low.2 percentage points higher than last year. comp. because of its transparency. Estonia could do slightly better in freedom from government and labor freedom. It is expected that the current ruling coalition. chemical products.7% Inflation (CPI): 3. 60 @ @ @ @ 40 Europe Average = 67. metals. food products. protects property rights effectively. Sweden. the Center Party. and the Estonian People’s Union.6 20 0 1995 2007 QUICK FACTS Population: 1.6 billion 7.2% 5-yr. E The economy is 78.4 million GDP (PPP): $19. and its overall score is much higher than the regional average.org/index.8% growth in 2004 7. which includes the liberal Reform Party. wood and paper.ESTONIA Rank: 12 Regional Rank: 5 of 41 stonia’s economy is 78. and monetary freedom. The country aims to join the European Economic and Monetary Union in January 2007. BACKGROUND: Since the fall of the Soviet Union. Estonia’s financial sector is the most developed among the Baltic States and. Its overall score is 2. property rights. Estonia has strong trade ties to Finland. chemical products Imports: $9. business freedom.0 billion Exports: $8. and Germany. and its services and manufacturing sectors are thriving. independent of politics and free of corruption. partially reflecting new methodological detail.

2% The labor market operates under rigid employment regulations that are barriers to continuing employment and productivity growth. including agricultural and manufacturing subsidies. and communications networks. 5 percent is deducted from Estonia’s monetary freedom score to account for these policies.8 83 90 90 90 64 51. transfers. are high. Other taxes include a value-added tax (VAT) and an excise tax. Estonia adopted a new code of criminal procedure in 2004. gas and water supply or related structures. and dismissing a redundant employee is relatively costly. Obtaining a business license is simple. distorting the prices of agricultural products. and close a business is relatively well protected by the national regulatory environment. and the commercial code is applied consistently. The government requires licenses for investment in banking. In the most recent year. including consumption and transfer payments. Residents and non-residents may hold foreign exchange accounts. The stock exchange is small but active. and security service enterprises were harmonized with EU regulations in 2004. The overall freedom to start. railroads and transport. Relatively moderate and unstable prices explain most of the monetary freedom score. banks may offer insurance. mining. As a participant in the EU’s Common Agricultural Policy. As part of its ongoing effort to strengthen its judicial procedures since gaining EU membership. Foreign financial institutions are welcome. for instance.5 percent of GDP. and brokerage services. Foreign direct investment rules regarding real estate. L L L L L 50 INVESTMENT FREEDOM — 90% The foreign investment code is transparent and equivalent to domestic rules. and foreign investors may obtain credit freely. Foreigners may invest in all sectors and own real estate. FREEDOM FROM GOVERNMENT — 66.7% Estonia has low tax rates.6 89. an additional 20 percent is deducted from Estonia’s trade freedom score. operate. and the government received 1. averaging 3. L L L L L 100 100 = most free. FINANCIAL FREEDOM — 90% Estonia’s financial sector is the strongest and most developed in the Baltic States. PROPERTY RIGHTS — 90% Estonia’s judiciary is independent and insulated from government influence. the 172 2007 Index of Economic Freedom . MONETARY FREEDOM — 83% Inflation in Estonia is moderate. FREEDOM FROM CORRUPTION — 64% Corruption is perceived as somewhat present.ESTONIA’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 80 76.8% Total government expenditures in Estonia. Various nontariff barriers are reflected in EU and Estonian government policy. TRADE FREEDOM — 76.1 percent of its total revenues from state-owned enterprises and government ownership of property. Estonia ranks 27th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. The common EU weighted average tariff rate was 1. The sound business climate has allowed entrepreneurship to flourish. compared to the world average of 48 days. The two largest banks are foreign and account for 60 percent of financial sector assets. Privatization is nearly complete with the exceptions of the ports and the main power plants. FISCAL FREEDOM — 89. which the government intends to reduce to 20 percent by 2009. Credit is allocated on market terms. There are rigid restrictions on increasing and contracting the number of work hours.2 0 government subsidizes agricultural production. Estonia’s universal banking model places no limits on what may be offered by financial institutions.7 percent in 2005. = world average BUSINESS FREEDOM — 80% Starting a business takes an average of 35 days.6% Estonia’s trade policy is the same as those of other members of the European Union. maritime transport. leasing. regulatory and licensing restrictions. government spending equaled 37. Only distributed profits are subject to the 23 percent corporate tax rate.7 66. The income tax rate is a flat 23 percent. The non-salary cost of employing a worker can be high. Property rights and contracts are enforced by the courts. overall tax revenue as a percentage of GDP was 31. depending on the length of the unemployment period. Consequently. Estonia dramatically reformed its financial system. ensuring high levels of job creation. and most capital transactions are not subject to controls. and the government has no stake in any bank. and payments. aviation. LABOR FREEDOM — 51. energy. Regulations are transparent and evenly applied. and closing a business is relatively easy.9 percent. and the insurance sector is dominated by foreign firms. Consequently. In the most recent year.6 percent between 2003 and 2005. The central bank may not lend to the public sector. undistributed profits of corporations are not subject to taxation regardless of whether they are invested or merely retained. Unemployment insurance amounts to about 40 percent to 50 percent of the worker’s previous wage. and other market access restrictions. Before its accession to the EU.

Ethiopia’s average tariff rate is high.9 billion 12. oilseeds Imports: $3.7 billion Primarily coffee. cereals.org/index. Ethiopia is ranked 21st out of 40 countries in the sub-Saharan Africa region. financial freedom. property rights.ETHIOPIA Rank: 116 Regional Rank: 21 of 40 thiopia’s economy is 54.4 percent free. The government remains involved in key sectors of the economy and reserves other sectors for Ethiopians.1 percentage points higher than last year.S. The top income and corporate tax rates are moderate. Over threequarters of the population in rural areas is engaged in agriculture. leather products. E The economy is 54. The banking system is subject to strong political pressure. gold. Property rights cannot be guaranteed. but obstacles to progress remain to be overcome.1 billion (38% from the U. freedom from government. partially reflecting new methodological detail.4% 5-yr. Its overall score is 1. according to our 2007 assessment. As a developing nation. 60 40 20 0 1995 2007 QUICK FACTS Population: 70 million GDP (PPP): $52. motor vehicles.8 billion Primarily food. Government expenditures are not high. BACKGROUND: Ethiopia is the second most populous country in sub-Saharan Africa and also one of the poorest. It is moving toward multi-party democracy. investment freedom. which makes it the world’s 116th freest economy. and business operations (except for closing a business) are significantly hampered by the government. live animals. How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. as is the rule of law.1 million (gross) Official Development Assistance: Multilateral: $834 million Bilateral: $1. Ethiopia faces typical and difficult challenges. comp. and overall tax revenue is not large as a percentage of GDP. and periodic drought can have severe consequences.4% free 100 80 Sub-Saharan Africa Average = 54. textiles 173 . and freedom from corruption. chemicals. and monetary freedom. and its overall score is equal to the regional average. Commercial regulation and bureaucracy are burdensome.3% FDI (net inflow): $545.) External Debt: $6. machinery. ann. and there are significant non-tariff barriers as well. and the government receives only a small amount of its total revenues from state-owned businesses. as demonstrated by the 2005 post-election crackdown on protestors. It does not score well in trade freedom.7 World Average = 60.6 billion Exports: $1.6 @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @@ @ @ @ @ @ @ @ @ @ Ethiopia does not rank strongly in any category but does score moderately well in fiscal freedom. Landlocked Ethiopia has depended heavily on Djibouti for access to foreign goods ever since a border war with Eritrea. growth $756 per capita Unemployment: n/a Inflation (CPI): 3.3% growth in 2004 4. qat. petroleum and petroleum products. live animals.

provides a highly expedited one-stop service that significantly cuts the cost of obtaining investment and business licenses. Non-performing loans are a lower percentage of the total but still account for over 25 percent of all loans. and some import restrictions. In the most recent year.2 percent of its total revenues from state-owned enterprises and government ownership of property. PROPERTY RIGHTS — 30% The judicial system enforces property rights weakly. The overall freedom to start.1 percent between 2003 and 2005. an additional 10 percent is deducted from Ethiopia’s monetary freedom score to adjust for measures that distort domestic prices. government spending equaled 25 percent of GDP. Consequently. including one state-owned company. FREEDOM FROM CORRUPTION — 22% Corruption is perceived as widespread. The non-salary cost of employing a worker is very low. and the top corporate tax rate is 30 percent. L L L L L 50 L L L L L 100 100 = most free. including controlling interest rates and owning the country’s largest bank (Commercial Bank of Ethiopia). However. including consumption and transfer payments.5 percent in 2002.ETHIOPIA’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 59. and current transfers are subject to controls and restrictions. The Ethiopian Investment Commission. but judges lack an understanding of commercial matters. overall tax revenue as a percentage of GDP was 12. The central bank is not independent. which accounts for three-quarters of total banking assets.9 50 20 30 22 72. The insurance sector is small and composed of nine companies. Non-tariff barriers include foreign exchange controls. compared to the world average of 48 days. burdensome trade-related regulations and bureaucracy.3% The labor market operates under relatively flexible employment regulations that hinder employment and productivity growth.3 0 INVESTMENT FREEDOM — 50% Ethiopia has taken several steps to liberalize its foreign investment laws and streamline the registration process. Ethiopia does not have a stock market. poorly staffed. Other taxes include a value-added tax (VAT) and a capital gains tax. MONETARY FREEDOM — 69. the main contact point for foreign investors. payments. but official and unofficial barriers still deter foreign investment. FINANCIAL FREEDOM — 20% Ethiopia’s small financial sector is subject to strong government influence. LABOR FREEDOM — 72. and the government retains a strong influence over lending. an additional 20 percent is deducted from Ethiopia’s trade freedom score to account for these non-tariff barriers. Ethiopia ranks 137th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. In the most recent year. The government influences prices through the regulation of state-owned enterprises and utilities and provides subsidies and price controls for petroleum products. averaging 10. The system is underdeveloped.4% Starting a business takes an average of 16 days. 174 2007 Index of Economic Freedom . Obtaining a business license is difficult. but dismissing a redundant employee is relatively costly. but the private sale of shares is common. but closing a business is relatively easy.5 percent. loans. Consequently. and credit in recent years. The top income tax rate is 35 percent. are low. and close a business is restricted by the national regulatory environment.9% Inflation in Ethiopia is relatively high. the private banks have increased their share of total deposits. The government has lowered the minimum capital investment for wholly and partially owned foreign investments.4 53 84. FREEDOM FROM GOVERNMENT — 83% Total government expenditures in Ethiopia. Entrepreneurship should be easier for maximum job creation.8% Ethiopia has moderate tax rates. Microfinance is well established. Certain sectors remain off-limits. Foreign exchange accounts. There are significant controls on capital transactions. Property and contractual rights are recognized. and inexperienced.8 83 69. = world average BUSINESS FREEDOM — 59. All investments must be approved and certified by the government. Cumbersome bureaucracy deters entrepreneurial activities. and the government received 7. and there are written commercial and bankruptcy laws. There are rigid restrictions on increasing and contracting the number of working hours. The regulatory system is generally considered to be fair but not always transparent. FISCAL FREEDOM — 84. State ownership and management still guides many sectors of the economy. operate. There is no guarantee that the decision of an international arbitration body will be fully accepted and implemented by Ethiopian authorities. Relatively high and unstable prices explain most of the monetary freedom score. Foreign firms are prohibited from investing in the banking and insurance sectors. TRADE FREEDOM — 53% Ethiopia’s weighted average tariff rate was 13. although efforts are underway to strengthen its capacity.

8 percent free. petroleum products. and freedom from corruption. molasses. Fiji has moderate top tax rates. and its overall score is slightly above the regional average. food. can be costly.3 billion Primarily manufactured goods. The sugar and clothing industries are direct sources of jobs for more than 10 percent of Fiji’s labor force but need adjustments to remain viable and competitive.) External Debt: $267 million Exports: $678 million Primarily sugar. a Pacific Island parliamentary democracy. however. is a developing economy in which agriculture and fishing account for around 15 percent of GDP. timber. which has expanded rapidly for two decades. Fiji is weak in investment freedom. chemicals How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. Fiji is ranked 13th out of 30 countries in the Asia–Pacific region. The labor market operates under highly flexible conditions that make hiring and firing workers very easy. and overall tax revenue is not high as a percentage of GDP. growth $6.1 World Average = 60. Opening a business in Fiji is a routine procedure. Closing an enterprise.FIJI Rank: 80 Regional Rank: 13 of 30 iji’s economy is 59.6 20 0 1995 2007 QUICK FACTS Population: 0.1% growth in 2004 2. remains a pillar of the economy and a major source of foreign exchange earnings. coconut oil Imports: $1. transport equipment. The government has tried to make the economy more business-friendly and diversified.066 per capita Unemployment: 7. comp. garments.2 million Official Development Assistance: Multilateral: $27 million Bilateral: $37 million (4. gold. 60 @ @ @ @@ @ @@ @@ @ @ @@ @ @ @ @@ @ @ @ @ 40 Asia Average = 59.8 million GDP (PPP): $5. according to our 2007 assessment.8 percentage points higher than last year. and the judicial system enforcing these regulations is erratic and clogged by a significant backlog of cases. fiscal freedom. fish. Its overall score is 2. 175 . F The economy is 59. but Fiji’s monetary freedom score is hurt by government price controls. partially reflecting new methodological detail.8% free 100 80 @ @ @@ @ @@ @ @ @@ @ Fiji scores well in business freedom.8% FDI (net inflow): –$9. Tourism.S.1 billion 4. but it still needs to deal with serious obstacles like the weak protection of property rights. which makes it the world’s 80th freest economy.org/index.2% 5-yr. machinery. and labor freedom. Inflation is fairly low.4% from the U. BACKGROUND: Fiji.6% (1999 estimate) Inflation (CPI): 2. ann. Foreign investment is highly controlled and regulated. property rights. and commercial licensing presents no problems.

3% Total government expenditures in Fiji. The government influences prices through state-owned utilities. The non-salary cost of employing a worker is low. The insurance sector consists of 10 companies and is dominated by foreign firms. In the most recent year. Consequently.5 percent. an additional 20 percent is deducted from Fiji’s trade freedom score to account for these nontariff barriers. and close a business is relatively well protected by the national regulatory environment. Capital transfers in excess of specified amounts require approval by the central bank.8 86.9 percent of its total revenues from state-owned enterprises and government ownership of property. FINANCIAL FREEDOM — 60% Fiji’s financial system is relatively well developed and is characterized by a significant degree of foreign participation. Most payments and transfers are subject to government approval and limitations on amounts. 176 2007 Index of Economic Freedom . Both the top income tax rate and the top corporate tax rate are 31 percent.6 percent between 2003 and 2005. averaging 2.4 61. and the government received 6. In the most recent year. including consumption and transfer payments. There are rigid restrictions on increasing or contracting the number of working hours. and dismissing a redundant employee is costless. including food. The many difficulties involved in obtaining land titles are serious obstacles to investment and growth. Obtaining a business license is simple. The overall freedom to start. = world average BUSINESS FREEDOM — 70. exercising too much discretion according to unclear criteria. or commercial banks. but closing a business can be difficult. Residents may hold foreign exchange accounts subject to approval by the government.1 percent in 2004. have undermined the independence of the judiciary. The lack of transparency still impedes entrepreneurial activities. FISCAL FREEDOM — 86. and is authorized to impose price controls on commodities to correct for “market inequities” for both consumers and producers. The government sold its minority stake in the Colonial National Bank in January 2006.4% Starting a business takes an average of 46 days.6 percent of GDP. LABOR FREEDOM — 70. FREEDOM FROM CORRUPTION — 40% Corruption is perceived as significant. L L L L L L L L L L 50 100 100 = most free. controls the prices of various products. The purported abrogation of the constitution and other events. operate. Entrepreneurship should be easier for maximum job creation. are moderate. Fiji ranks 55th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. The government also implements import licensing restrictions and quotas. compared to the world average of 48 days.8% Fiji’s average tariff rate was 9. Other taxes include a value-added tax (VAT) and a property tax.3% Fiji has moderate tax rates. Consequently. FREEDOM FROM GOVERNMENT — 74. and processing is slowed by a shortage of prosecutors. Relatively stable prices explain most of the monetary freedom score.FIJI’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 70. government spending equaled 31. Fiji has a small stock exchange. MONETARY FREEDOM — 74.3 74.5 0 INVESTMENT FREEDOM — 30% Fiji places a number of restrictions on foreign investment but also offers various tax incentives to investors in preferred activities. and three other foreign banks operate freely. an additional 15 percent is deducted from Fiji’s monetary freedom score to adjust for measures that distort domestic prices.3 74. The government requires foreign investors to undergo several bureaucratic procedures to register and also must approve all foreign investments. PROPERTY RIGHTS — 30% Protection of property is highly uncertain in Fiji. The banking system accounts for 35 percent of financial system assets and is largely private.5% The labor market operates under relatively flexible employment regulations that could be improved to enhance employment and productivity growth.7% Inflation in Fiji is relatively low.7 30 60 30 40 70. The two largest banks are Australian and account for 80 percent of the banking market. Non-residents may hold foreign exchange accounts subject to certain regulations. TRADE FREEDOM — 61. The national pension system accounts for 45 percent of financial sector assets. The backlog of cases in the courts is significant. The state-owned Fiji Development Bank provides business development loans and offers commercial banking services. overall tax revenue as a percentage of GDP was 11. including abolition of the Supreme Court. the South Pacific Stock Exchange.

Both the information and communications technology sectors make significant contributions to the economy. and business operations are not hampered by the bureaucracy. and business freedom. however. chemicals. The government has given priority to reducing its labor market rigidities. Finland has a standardized monetary policy that yields low inflation. comp.5% free 100 80 @ @ @ @ @@ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ Finland has high levels of investment freedom. Property is protected by a transparent rule of law. petroleum and petroleum products.org/index.9 percentage point higher than last year.FINLAND Rank: 16 Regional Rank: 9 of 41 inland’s economy is 76. paper. Finland took its turn at the European Union presidency during the second half of 2006. 177 . high government spending supports an extensive welfare state: Government spending equals half of Finland’s GDP. Because Finland’s contributions to the EU budget are expected to grow. financial freedom. ann.7 billion (2005) Exports: $71. textile yarn and fabrics.6 20 0 1995 2007 QUICK FACTS Population: 5.5 World Average = 60. which makes it the world’s 16th freest economy. BACKGROUND: Finland ranks among the world’s most competitive and transparent economies. machinery. metals. monetary freedom. 60 40 Europe Average = 67. As a member of the euro zone.6 billion 3.951 per capita Unemployment: 8. A business-friendly environment with minimal regulation is enabling the rapid growth of private enterprise. iron and steel. Its overall score is 0. partially reflecting new methodological detail. and its overall score is well above the regional average.8% 5-yr. Finland could improve its labor freedom and freedom from government. such as a limited number of working hours allowed per week and very high unemployment benefits. despite some government distortion in the agricultural sector. growth $29. timber. according to our 2007 assessment.6% growth in 2004 2. transport equipment.6 billion Primarily food. grains How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. chemicals. property rights.2 million GDP (PPP): $156.7 billion Official Development Assistance: Multilateral: None Bilateral: None External Debt: $211.1 billion Primarily machinery and equipment.8% (2004 estimate) Inflation (CPI): 0. Finland is ranked 9th out of 41 countries in the European region. pulp Imports: $60. F The economy is 76. The labor market operates under fairly restrictive regulations. the government faces the challenge of maintaining popular domestic support for EU policy. and foreign investors enjoy excellent market access.5 percent free.2% FDI (net inflow): $5. As in many other European social democracies. There is virtually no corruption.

OKO Bank. are very high.7 percent. The national wealth tax was abolished effective January 2006. overall tax revenue as a percentage of GDP was 44. and the government received 3.1 percent of its total revenues from state-owned enterprises and government ownership of property. and restaurants.7 70 80 90 96 53. The top income tax rate is 32. and close a business is strongly protected by the national regulatory environment. However. There are no exchange controls and no restrictions on current transfers or repatriation of profits. which is majority foreign-owned. The non-salary cost of employing a worker is high.5 percent.6% Finland’s trade policy is the same as those of other members of the European Union. distorting the prices of agricultural products. and the top corporate tax rate is 26 percent. an 178 2007 Index of Economic Freedom . including agricultural and manufacturing subsidies. The overall freedom to start. The common EU weighted average tariff rate was 1. MONETARY FREEDOM — 89. Various nontariff barriers are reflected in EU and Finland government policy. and the Sampo Group).7 percent of GDP. mining. Stable prices explain most of the monetary freedom score. and dismissing a redundant employee is relatively costly. regulatory and licensing restrictions.3 76. compared to the world average of 48 days. Foreign investments do not require prior approval. Between 2003 and 2005. and closing a business is very easy. The government owns about 14 percent of the Sampo Group. There were 344 domestic banks operating at the end of 2004. a regional integrated network of exchanges. operate.4% The labor market operates under restrictive employment regulations that hamper employment and productivity growth. The government also imposes artificially low prices on pharmaceutical products. PROPERTY RIGHTS — 90% FISCAL FREEDOM — 75.4 0 additional 5 percent is deducted from Finland’s monetary freedom score to account for these policies. = world average BUSINESS FREEDOM — 95. 100 = most free. including security.3% Starting a business takes an average of 14 days. The quality of Finland’s judiciary and civil service is generally high. including consumption and transfer payments. The sound business environment allows entrepreneurship to flourish in Finland. Involuntarily unemployed individuals automatically receive benefits up to 500 working days. Capital markets determine interest rates.FINLAND’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 95. Finland ranks 2nd out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. Deregulation in the 1980s and a banking and financial crisis in the 1990s led to consolidation in the banking sector. TRADE FREEDOM — 76. Expropriation is unlikely. In the most recent year. The stock exchange is part of OMX Exchanges. and contractual agreements are strictly honored. but acquisitions of large Finnish companies may require follow-up clearance from the Ministry of Trade and Industry.7% Finland uses the euro as its currency. FINANCIAL FREEDOM — 80% Finland’s banking system is modern and sophisticated. Consequently. which together account for over 80 percent of the banking market. Consequently. but the banking system is dominated by three major bank groups (Nordea. the government subsidizes agricultural production. and other market access restrictions in sectors such as pharmaceuticals and services.3 percent. Finland’s weighted average annual rate of inflation was 0. L L L L L L L L L L 50 100 INVESTMENT FREEDOM — 70% Finland welcomes foreign investment and imposes few restrictions. Obtaining a business license is relatively simple. travel agencies. banking. Other taxes include a value-added tax (VAT) and a real estate tax. an additional 20 percent is deducted from Finland’s trade freedom score.7 percent in 2005. FREEDOM FROM CORRUPTION — 96% Corruption is perceived as almost nonexistent. Finland’s unemployment insurance system provides both a government-funded basic unemployment benefit and the option of participating in an unemployment fund. LABOR FREEDOM — 53. government spending equaled 50. FREEDOM FROM GOVERNMENT — 39% Total government expenditures in Finland. Property rights are well protected.4% Finland has moderate tax rates.6 75. and both residents and non-residents may hold foreign exchange accounts. Non–European Economic Area investors must apply for a license to invest in many sectors. In the most recent year. The banking industry is totally open to foreign competition. Restrictions on the purchase of land apply only to non-residents purchasing land in the Aaland Islands. as a participant in the EU’s Common Agricultural Policy.4 39 89. insurance.

and monetary freedom. As a member of the European Union. Its overall score is 0. comp. freedom from corruption. Property is protected by transparent rule of law.1% FDI (net inflow): –$23.1% 5-yr. chemicals How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage.5 World Average = 60. Agricultural products. its rejection of the European Constitution in May 2005 was a major political crisis. particularly wine and cheese. 60 40 Europe Average = 67. Foreign investment is also hurt by the intrusive regulatory system.4 million GDP (PPP): $1. chemicals. freedom from government.6 billion Primarily machinery and equipment. and its overall score is lower than the regional average. plastics. partially reflecting new methodological detail. France is ranked 26th out of 41 countries in the European region. crude oil. iron and steel. government spending and tax rates are exceptionally high in order to support an extensive welfare state. property rights. vehicles. which makes it the world’s 45th freest economy. Fiscal freedom. are politically protected exports. F The economy is 66. growth $29.1% free 100 80 @ @ @ @ @@ @ @ @ @ @ @ @ @ @ @ @@ @ @ @ @ @ @ @ @ @ @ @ @ @ @@ @ @ @ @ @ @ France scores well in business freedom.8 trillion 2.1% growth in 2004 2. despite agricultural distortions.9 percentage point higher than last year.6 20 0 1995 2007 QUICK FACTS Population: 60. and investment freedom are weak. aircraft. France has a standardized monetary policy that yields relatively low inflation.org/index.1 percent free. Excessive labor protections have generated widespread youth unemployment and underemployment but have proven resistant to reform. plastics. ann. according to our 2007 assessment.FRANCE Rank: 45 Regional Rank: 26 of 41 rance’s economy is 66.5 billion Primarily machinery and transportation equipment. As in many other European social democracies.300 per capita Unemployment: 10% Inflation (CPI): 2. BACKGROUND: Because France is a founding member of the EU.8 trillion (2005) Exports: $531. 179 . Prime Minister Dominique de Villepin’s capitulation to labor union elements with regard to new labor legislation demonstrates the strength of reactionary elements in France. but the government has continued to open the telecommunications sector to more competition and recently announced its intentions to privatize the state-owned Gaz de France energy corporation. beverages Imports: $526. Services account for the largest portion of the economy. aircraft. Starting a business takes only eight days—far below the world average—and closing a business is fairly easy. pharmaceutical products.5 billion Official Development Assistance: Multilateral: None Bilateral: None External Debt: $2.

Other taxes include a value-added tax (VAT) and a business tax. overall tax revenue as a percentage of GDP was 43. insurance. publishing. Both residents and non-residents may hold foreign exchange accounts.3 percent corporate tax rate plus a surcharge of 1. The government also applies additional standards. FINANCIAL FREEDOM — 60% France has a large and sophisticated financial market. The constitution states that any company defined as a national public service or natural monopoly must pass into state ownership. operate. Relatively low and stable prices explain most of the monetary freedom score. audiovisual. government spending equaled 53. and foreign investors participate freely. maritime transport. L L L L L L L L L L 50 100 INVESTMENT FREEDOM — 50% Foreign investment regulations are fairly simple. books.9 0 are regulated for pharmaceuticals. transfers. The common EU weighted average tariff rate is 1. The bureaucracy is competent. LABOR FREEDOM — 65.2 32 81. and rail transportation. quotas. and both the judiciary and the civil service are highly professional. Due partly to complicated and pervasive labor regulations. road transportation. air transport. Foreign investment is restricted in agriculture. = world average BUSINESS FREEDOM — 86. or repatriation of profits.3 50 60 70 75 65. radio and television media.9% MONETARY FREEDOM — 81. FREEDOM FROM GOVERNMENT — 32% Total government expenditures in France. France ranks 18th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. gas. Capital markets are well developed. The top income tax rate is 48. and negative attitudes toward foreign investors as disincentives. The postal service has its own bank and holds 10 percent of the financial services market. Consequently.1 percent. As a participant in the EU’s Common Agricultural Policy. including agricultural and manufacturing subsidies. Foreign companies complain of high payroll and income taxes. the government subsidizes agricultural production. France’s weighted average annual rate of inflation was 1.7 percent.5 percent). and closing a business is relatively easy. Holders of banking licenses may engage in any banking activity.7 percent of GDP. TRADE FREEDOM — 76. electricity.6% France’s trade policy is the same as those of other members of the European Union. The overall freedom to start. and the government received 3. and close a business is protected by the national regulatory environment. and tourism.7 percent. regulatory. In the most recent year.9 percent of its total revenues from state-owned enterprises and government ownership of property. 180 2007 Index of Economic Freedom . In the most recent year.1 76. though entanglements are common and can be time-consuming. are very high.9 percent. including consumption and transfer payments. an additional 20 percent is deducted from France’s trade freedom score. banking and financial and accounting services. and the top corporate tax rate is 33. A recent effort to reform the regulated labor market met fierce resistance. regulatory and licensing restrictions. 100 = most free.FRANCE’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 86. or regulations on some items. Although bureaucracy still remains pervasive. legal. and dismissing a redundant employee can be costly. compared to the world average of 48 days. telecommunications.6 64. The financial. The government owns stakes in several insurance companies. pervasive regulation of labor and products markets. Prices The labor market operates under regulated employment rules that could be improved to enhance employment and productivity growth. an additional 10 percent is deducted from France’s monetary policy score. The government has powers under the Commerce Code to impose price controls but uses them lightly. the government has made some progress in improving the transparency of the regulatory system. aircraft production. France is the world’s fourth-largest insurance market. The government has sold its majority stake in most banks and insurance companies but retains ownership of the Caisse des Depots et Consignations and a minority stake in several financial institutions.5 percent of the market in 2004. Between 2003 and 2005. and non-residents may purchase real estate. Most loans are provided at market terms. Obtaining a business license is simple. There are no restrictions or controls on payments. and other market access restrictions. and foreign companies held 21. and accounting systems are somewhat burdensome but consistent with international norms. including the country’s largest.2% France has high tax rates. The non-salary cost of employing a worker is very high. PROPERTY RIGHTS — 70% Contractual agreements are secure.3% France is a member of the euro zone. Various non-tariff barriers are reflected in EU and French government policy. FISCAL FREEDOM — 64. Consequently. distorting the prices of agricultural products. There are rigid restrictions on increasing or expanding the number of working hours. the unemployment rate is high. FREEDOM FROM CORRUPTION — 75% Corruption is perceived as minimal.8 percent (a 33.1% Starting a business takes an average of eight days. and many financial incentives are available.

forestry. comp. according to our 2007 assessment. G The economy is 53% free 100 80 Sub-Saharan Africa Average = 54. and outdated infrastructure. Inflation is exceptionally low. BACKGROUND: Gabon’s economy is driven by oil.6 @@ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @@ @ @ @ @ @ @@ @@ @@ @ @ @ @ @ @ @ Gabon enjoys high levels of fiscal freedom. The government has privatized or dissolved over half of Gabon’s state-owned firms. and minerals. Economic growth has barely exceeded 1 percent over the past decade. Gabon faces many challenges.org/index. manganese.9 billion Primarily machinery and equipment. property rights. and freedom from corruption. Though taxes are high. Oil accounts for over 40 percent of gross domestic product. partially reflecting new methodological detail. timber. Gabon is ranked 28th out of 40 countries in the subSaharan Africa region. and over 80 percent of exports. Gabon’s financial system is small and subject to substantial political interference. but production is declining. chemicals. overall revenue is relatively small as a percentage of GDP. and its overall score is almost equal to the regional average. although not as extensively as in other developing countries in the region. Ongoing problems include mismanagement and a lack of transparency in government finances.4 million GDP (PPP): $9. and monetary freedom. uranium Imports: $1. financial freedom.2 billion Exports: $3. including weak trade freedom. little progress has been made. President Omar Bongo Ondimba has ruled Gabon since 1967.7 World Average = 60.4 billion Primarily crude oil. The average tariff rate is extremely high and is supplemented by extensive non-tariff barriers. which makes it the world’s 129th freest economy. business freedom.S.4% growth in 2004 0. 60 40 20 0 1995 2007 QUICK FACTS Population: 1. Its overall score is 2 percentage points lower than last year.4% FDI (net inflow): $317. ann. construction materials 181 . 65 percent of government revenues.0% (Jan. and the government is trying to diversify the economy. How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. Though the government agreed with the International Monetary Fund in 2005 to liberalize foreign investment rules.7 million Official Development Assistance: Multilateral: $21 million Bilateral: $74 million (4% from the U.0 billion 1. growth $6. but the government distorts market prices through a variety of price controls on certain goods.) External Debt: $4.7% 5-yr. food.GABON Rank: 129 Regional Rank: 28 of 40 abon’s economy is 53 percent free.623 per capita Unemployment: 20. investment freedom. corruption. National business licensing procedures are simple. The judicial system is protective of private property but is also influenced by politics. 2004) Inflation (CPI): 0. Corruption is present in the civil service. but some other regulations are difficult and inefficient.

Entrepreneurship should be easier for maximum job creation. Complex regulations and bureaucratic delays are ongoing problems. MONETARY FREEDOM — 81. and export quotas and subsidies add to the cost of trade. and official authorization. and a common currency. government ownership shares account for about 25 percent of total financial sector assets. Non-residents may hold foreign exchange accounts but must report them to the government.7% The labor market operates under restrictive employment regulations that hinder employment and productivity growth. an additional 20 percent is deducted from Gabon’s trade freedom score to account for these non-tariff barriers.4 74. FREEDOM FROM CORRUPTION — 29% FREEDOM FROM GOVERNMENT — 71% Total government expenditures in Gabon. Private property is moderately well protected in Gabon. Consequently. Privatization of state-owned companies has been limited in recent years. averaging 0. The government must approve most transfers and payments to most countries.3% Inflation in Gabon is low. There are four major insurance companies and a small regional stock exchange headquartered in Gabon.1% Starting a business takes an average of 60 days. The president influences the judiciary and both chambers of parliament. = world average BUSINESS FREEDOM — 52. and dismissing a redundant employee is relatively costly.7 0 2005.2 71 81. However.2% Gabon has high tax rates. In the most recent year. but closing a business is difficult. the Central Bank of West African States (BCEAO). Expropriation is unlikely. although such loans require prior authorization. The government also imposes a value-added tax (VAT). Under an agreement signed with the IMF in July 182 2007 Index of Economic Freedom .7 percent of GDP. compared to the world average of 48 days. Such stable prices explain most of the monetary freedom score. LABOR FREEDOM — 55. Import controls. Capital transactions are subject to various reporting requirements. are moderate. The banking system includes a development bank and five commercial banks and is open to foreign competition. Obtaining a business license is relatively simple. Gabon is committed to economic liberalization. government spending equaled 21. but not much has been done in this regard. In the most recent year. overall tax revenue as a percentage of GDP was 11. and medical equipment. PROPERTY RIGHTS — 40% FISCAL FREEDOM — 74. most banks are at least partially owned by the state. 100 = most free. 100 L L L L L L L L L L 50 FINANCIAL FREEDOM — 40% Gabon’s financial system is small and subject to extensive government influence. and close a business is restricted by the national regulatory environment. and another is entirely foreign-owned. Regulations related to increasing or contracting the number of work hours are rigid. and other countries doing business in Gabon do not always treat giving or accepting a bribe as a criminal act. Overall. Three banks are affiliated with French banks. The government influences prices through subsidies to state-owned enterprises and price controls on various products including fuel. TRADE FREEDOM — 46. INVESTMENT FREEDOM — 40% Foreign investment and domestic capital are not treated equally. Corruption is perceived as widespread. operate. The overall freedom to start. Gabon is a member of the Central African Economic and Monetary Community along with five other countries.8 percent in 2005. pharmaceuticals. an additional 15 percent is deducted from Gabon’s monetary freedom score to adjust for measures that distort domestic prices.GABON’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 52. controls.9 percent. Gabon ranks 88th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. including consumption and transfer payments. The non-salary cost of employing a worker is high. All real estate transactions must be reported.1 46.3 40 40 40 29 55. and the top corporate tax rate is 35 percent.4% Gabon’s weighted average tariff rate was 16.3 percent between 2003 and 2005. Domestic credit is limited and expensive but available to foreign investors without discrimination. These countries share a common central bank. Residents may hold foreign exchange accounts subject to some restrictions. The top income tax rate is 50 percent. high import taxes. Consequently. and the government received 54 percent of its total revenues from state-owned enterprises and government ownership of property.

re-exports Imports: $234. machinery. Most of the population lives in rural villages and is engaged in subsistence agriculture. investment freedom. who led a successful military coup in 1994. As a developing nation. BACKGROUND: The Gambia is Africa’s smallest country. partially reflecting new methodological detail. advancing privatization. Trade freedom. and overall tax revenue is not overly large as a percentage of GDP. comp.3 percentage point lower than last year. which is comparable to the U.org/index.2% FDI (net inflow): $59 million Official Development Assistance: Multilateral: $70 million Bilateral: $15 million (21% from the U.. lacking in transparency. and the judiciary is subject to political interference.6% free 100 80 Sub-Saharan Africa Average = 54.6 percent free. The Gambia ranks moderately well in fiscal freedom. The Gambia is ranked 13th out of 40 countries in the sub-Saharan Africa region. The Gambia faces significant challenges.S. which makes it the world’s 93rd freest economy.991 per capita Unemployment: n/a Inflation (CPI): 14. Government expenditures are not excessive.1% 5-yr.) External Debt: $674. and dismissing a redundant employee is easy. and removing regulatory impediments to business. manufactures. growth $1. President Yahya Jammeh. and an inefficient and corrupt bureaucracy has a negative impact on most aspects of commercial life. cotton lint. transport equipment How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. and many parts of the government are poorly managed. and the level of income from state-owned businesses is relatively low. and inefficient. was re-elected in 2001 and. was expected to win a third term in September 2006. and freedom from corruption all score relatively poorly. fuel.0 million Exports: $126. property rights. according to our 2007 assessment. The labor market is highly flexible. and its overall score is slightly higher than the regional average. ann. The economy is 57. Corruption remains a problem. as of this writing. The government has announced its commitment to improving infrastructure.5 million GDP (PPP): $2. freedom from government. palm kernels.7 World Average = 60.9 billion 5. and labor freedom.4 million (2004 estimate) Primarily food. The agricultural sector accounts for about 30 percent of GDP. 183 .S.THE GAMBIA Rank: 93 Regional Rank: 13 of 40 T he Gambia’s economy is 57. Property rights are not secured by an independent judiciary. The average tariff rate is fairly high. Both the top income tax rate and the top corporate tax rate are 35 percent. fish.8 million (2004 estimate) Primarily peanut products. Its overall score is 0.6 @ @ @ @ @ @ @@ @ @ @ @ @ @ @ @ @ @ @ @@ @ @ @ @ @ @ @ @ @ @ @ @ @ 60 40 20 0 1995 2007 QUICK FACTS Population: 1.1% growth in 2004 4.

and telecommunications.6 percent of its total revenues from state-owned enterprises and government ownership of property. Bureaucratic inefficiency and lack of transparency remain problems. The government influences prices through a large public sector. Microfinance is growing in importance.4% The Gambia has moderately high tax rates. The largest commercial bank is a locally incorporated subsidiary of the U.4 76. which is 25 percent owned by Gambian shareholders. PROPERTY RIGHTS — 30% The judiciary.2 percent of GDP. The non-salary cost of employing a worker is moderate. FISCAL FREEDOM — 81. averaging 7. is sometimes subject to pressure from the executive branch. and the central bank is subject to government influence. The Gambia ranks 103rd out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. Intimidation of lawyers. and a lack of technical support for the legal profession severely undermine the administration of justice. The Supreme Court is in disarray and has not functioned since 2003. a sales tax. TRADE FREEDOM — 54. The insurance sector and the stock market remain small. including those in agriculture. operate. and most leading companies. and a road tax. Consequently. and close a business is restricted by the national regulatory environment. electricity. Most leading companies are still under government control. Lack of judicial security is one of the main deterrents to doing business. Residents and non-residents may hold foreign exchange accounts. compared to the world average of 48 days.K. FREEDOM FROM GOVERNMENT — 76.2 50 60 30 27 70.6 percent. restrictive licensing arrangements. and the government received 2. Supervision and regulation of the financial system remain deficient because of weak institutional capacity. Consequently. Regulatory barriers—including the absence of a transparent competition law—need to be addressed in order to attract the foreign capital needed to jump-start sustainable growth. Both the top income tax rate and the top corporate tax rate are 35 percent. Obtaining a business license is relatively simple. The overall freedom to start. There are no limits on foreign ownership or control of businesses in all sectors except television broadcasting and defense-related activities. Some capital transactions are controlled. FREEDOM FROM CORRUPTION — 27% Corruption is perceived as widespread. an additional 15 percent is deducted LABOR FREEDOM — 70. maritime services. are moderate. but closing a business is difficult. L L L L L L L L L L 50 100 INVESTMENT FREEDOM — 50% Foreign and domestic investment receive equal treatment. In the most recent year. Plans to establish a West African Monetary Zone (WAMZ) with four other countries based on a second West African common currency. remain in government hands. There are no restrictions on payments and transfers. water. Other taxes include a capital gains tax.9 percent between 2003 and 2005. and sanitary and phytosanitary prohibitions on a few products. MONETARY FREEDOM — 67. especially at the lower levels. overall tax revenue as a percentage of GDP was 18.-based Standard Chartered. In the most recent year. including consumption and transfer payments.2% Inflation in The Gambia is relatively high. and foreign investors may invest without a local partner. Non-tariff barriers to trade include an inefficient and sometimes corrupt customs process. public transportation. FINANCIAL FREEDOM — 60% The Gambia’s financial system is small and dominated by banking.9% The labor market operates under relatively flexible employment regulations that could be improved to enhance employment and productivity growth. a lack of independence. although the government does state its intent to encourage joint ventures. = world average BUSINESS FREEDOM — 59% Starting a business takes an average of 27 days. 100 = most free.4 67.7 percent in 2003. and privatization has proceeded slowly. government spending equaled 31.6 81. The Gambia is a member of the Economic Community of West African States (ECOWAS).9 0 from The Gambia’s monetary freedom score to adjust for measures that distort domestic prices. and dismissing a redundant employee is relatively costless. an additional 20 percent is deducted from The Gambia’s trade freedom score to account for these non-tariff barriers. This benefits entrepreneurship and helps to maximize job creation. 184 2007 Index of Economic Freedom .6% The Gambia’s simple average tariff rate was 12.THE GAMBIA’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 59 54. the eco. Relatively high and unstable prices explain most of the monetary freedom score. and possessing a joint central bank have been delayed. which promotes regional trade and economic integration. Repatriation of profits is permitted.4% Total government expenditures in The Gambia. There are four other commercial banks and a development bank that opened in 1998.

2006. according to our 2007 assessment. and property rights cannot be guaranteed by the courts because of inefficiency and persistent corruption. which makes it the world’s 35th freest economy. citrus fruits. grain and other foods. and government tax revenue is fairly low as a percentage of GDP.) External Debt: $2.5 billion Primarily fuels.6 billion Primarily scrap metal. partially reflecting new methodological detail but mostly as a result of an increase in labor freedom. chemicals. Business operations are simple and not hampered by red tape. On May 2. Georgia is ranked 20th out of 41 countries in the European region. property rights.GEORGIA Rank: 35 Regional Rank: 20 of 41 eorgia’s economy is 68. machinery. and its overall score is equal to the regional average. fiscal freedom. transport equipment. Georgia has much to improve.8% 5-yr.org/index. and freedom from corruption remain problems. such as streamlining trade tariffs and taxes. freedom from government. Georgia’s labor market is highly flexible and far freer than those of most advanced economies. President Mikheil Saakashvili has remained politically dominant since February 2005. tea. The government has undertaken several privatizations and structural reforms. Non-tariff trade barriers are correspondingly high. Georgia has benefited from completion of the Baku– Tbilisi–Ceyhan oil pipeline from Azerbaijan to Turkey. As a transforming post-Communist economy. Saakashvili announced that Georgia will re-examine its membership in the Commonwealth of Independent States. A very low top income tax rate complements the low corporate tax rate.1 billion Exports: $1.7% FDI (net inflow): $489. but its survival was later threatened by civil wars and secessionist movements. Its overall score is 3.5 World Average = 60.5 million Official Development Assistance: Multilateral: $137 million Bilateral: $221 million (42% from the U. ann.9 percentage points higher than last year. G The economy is 68. Trade freedom. growth $2. which provides oil transit revenue. a Russian-dominated bloc of former Soviet republics.5 million GDP (PPP): $12. comp. 40 Europe Average = 67. BACKGROUND: Georgia became independent with the collapse of the Soviet Union in 1991.8 billion 6.7% free 100 80 @ @ @@ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @@ 60 Georgia scores highly in business freedom.2% growth in 2004 5. and government-owned businesses are a negligible source of revenue.6 20 0 1995 2007 QUICK FACTS Population: 4. How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage.844 per capita Unemployment: 15. and labor freedom.7 percent free. pharmaceuticals 185 . Government expenditures are also low. wine Imports: $2.3% Inflation (CPI): 5.S. fuel re-exports. and an inefficient bureaucracy burdens many commercial sectors. machinery and parts.

FREEDOM FROM CORRUPTION — 23% Corruption is perceived as widespread. government spending equaled 19.3 percent between 2003 and 2005. Judicial inefficiency and corruption are the only major impediments to foreign investors. compared to the world average of 48 days. but the government may impose control over prices through regulation of state-owned enterprises. Consequently. the government has fired thousands of civil servants and police and has prosecuted several bureaucrats.9 60 70 30 23 99. Georgia ranks 130th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. Rules on increasing or contracting the number of work hours are very flexible. are low.1 percent in 2004. Other taxes include a value-added tax (VAT). There are no restrictions on purchases of or investment in domestic companies. and close a business is relatively well protected by the national regulatory environment. Foreign firms are allowed to participate freely in privatizations. TRADE FREEDOM — 61. There were 20 banks as of April 2005.8 94. The insurance sector includes significant foreign participation. an additional 5 percent is deducted from Georgia’s monetary freedom score.3 77.9 61. The top six banks account for about 87 percent of banking assets. Obtaining a business license and closing a business are relatively simple. This benefits entrepreneurship and helps to maximize job creation. = world average receives equal treatment. Both foreigners and Georgians continue to doubt the judicial system’s ability to protect private property and contracts. bonds. The top income tax rate is a flat 12 percent. and local participation in businesses or investments is not required.1 percent of GDP. Under its anti-corruption program. Both domestic and foreign investors can use a one-stop-window system to obtain a business license in 24 hours. and banks remain risk-averse. Non-performing loans are a problem for some banks. Foreign investment 186 2007 Index of Economic Freedom . INVESTMENT FREEDOM — 60% Georgia has undergone a major structural reform to create a business-friendly environment. While Georgia has made progress toward liberalizing its trade regime. the banking sector remains weak.2 91. The overall freedom to start. down from 247 in 1995. but dismissing a redundant employee is costless. FISCAL FREEDOM — 94. certain non-tariff barriers. including consumption and transfer payments. In the most recent year. stocks. an additional 20 percent is deducted from Georgia’s trade freedom score to account for these non-tariff barriers.2% Georgia has low tax rates.9 0 50 100 100 = most free. or any other property. Despite consolidation. and the top corporate tax rate is 20 percent.7 percent of its total revenues from state-owned enterprises and government ownership of property. Foreign bank branches are welcome. In the most recent year. continue to add to the cost of trade.GEORGIA’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 78. The stock exchange is small and underdeveloped. Georgia leads the world in labor market freedom. Residents and non-residents may hold foreign exchange accounts. LABOR FREEDOM — 99. MONETARY FREEDOM — 77. Prices are generally set in the market. FREEDOM FROM GOVERNMENT — 91. There are limits and tests for payments and current transfers. The government also provides subsidies for agricultural products.8% Georgia’s weighted average tariff rate was 9. Capital transactions are not restricted but must be registered. and a tax on dividends. averaging 7. The government does not have a stake in any bank.9% Starting a business takes an average of 16 days.9% The labor market operates under highly flexible employment regulations that enhance employment and productivity growth. including agriculture subsidies and an inefficient and corrupt customs process. PROPERTY RIGHTS — 30% Judicial corruption is still a problem despite the government’s substantial improvement in trying to raise the level of efficiency and fairness in the courts.2 percent. The non-salary cost of employing a worker can be high. overall tax revenue as a percentage of GDP was 18. L L L L L L L L L L BUSINESS FREEDOM — 78. operate. a tax on interest.3% Total government expenditures in Georgia. The central bank assumed a supervisory role and imposed stringent reporting and capital requirements that led to the closure or merging of a number of banks.9% Inflation in Georgia is relatively high. and foreign investors are majority owners of several banks. FINANCIAL FREEDOM — 70% Georgia’s small financial sector has undergone substantial liberalization since the 1990s. and the government received 0. Relatively unstable prices explain most of the monetary freedom score. Consequently.

which makes it the world’s 19th freest economy. Germany is ranked 11th out of 41 countries in the European region. enforced by the rule of law.5% free 100 80 @ @ @@ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ Germany enjoys strong business freedom. metals and manufactures. metals 187 . The labor market operates under restrictive conditions. vehicles. Per capita income is now below nine other EU countries. the economy has performed poorly in recent years. partially reflecting new methodological detail. vehicles. textiles. food.6% growth in 2004 1.org/index.6 20 0 1995 2007 QUICK FACTS Population: 82.GERMANY Rank: 19 Regional Rank: 11 of 41 ermany’s economy is 73. and investment freedom. Business regulations are clear and efficient. Freedom from government.6 trillion (2005) Exports: $1. freedom from corruption.3 billion Official Development Assistance: Multilateral: None Bilateral: None External Debt: $3. chemicals. 60 40 Europe Average = 67.1 trillion Primarily machinery. ann. and a fiscal budget deficit in 2005 again violated the EU’s Stability and Growth Pact.5 World Average = 60. and labor freedom are weaker.3 trillion 1. Even though it is home to many world-class companies and rates as the world’s largest exporter. Imports: $912. textiles How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. and its overall score is higher than the regional average. although Germany has made a serious effort to lower its labor protectionism. There is almost no corruption. property rights.303 per capita Unemployment: 10. Overall growth is weak. where it remained in 2006. which is subject to the same regulations as domestic investment.5 million GDP (PPP): $2. Over 5 million Germans were unemployed in 2005 when the unemployment rate surged over 10 percent to highs not seen in seven decades. Its overall score is 0. growth $28. The government imposes few restrictions on foreign capital. As in many other European social democracies. BACKGROUND: Germany is the European Union’s largest economy. government spending and tax rates are exceptionally high in order to support an extensive welfare state.6% (4th quarter 2004) Inflation (CPI): 1. and free of political interference.5 percentage point lower than last year.6 billion Primarily machinery. The fact that Germany’s non-wage labor costs are among the world’s highest indicates an area in need of fundamental reform. chemicals. according to our 2007 assessment.5 percent free. comp.2% 5-yr.7% FDI (net inflow): –$31. food. financial freedom. G The economy is 73.

operate.5% Germany is a member of the euro zone. and constitutional issues. TRADE FREEDOM — 76. FISCAL FREEDOM — 74. tax.3 48 81. Germany’s weighted average annual rate of inflation was 1. Interest rates are market-determined. The 120 banks with foreign ownership comprise a modest element of banking sector activity.5 percent solidarity tax). and dismissing a redundant employee is costly.4 percent by an additional 5. Germany ranks 16th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. Private banks account for less than 30 percent of the market. repatriation of profits. compared to the world average of 48 days.6 0 Common Agricultural Policy. Between 2003 and 2005. The judiciary is independent and efficient. and no permanent currency controls on foreign investments. The government has stopped providing state guarantees and subsidies to public banks. regulatory and licensing restrictions. the government subsidizes agricultural production. = world average BUSINESS FREEDOM — 88. The non-salary cost of employing a worker is high. except for requiring permission for the sale of defense companies to foreign investors. The banking sector is dominated by public-sector financial institutions. telecommunications. In the most recent year. There are separate supreme courts to deal with cases on commercial.5 percent surcharge). overall tax revenue as a percentage of GDP was 34. but some bureaucratic obstacles persist.6 percent.2 76. The overall freedom to start. As a participant in the EU’s 188 2007 Index of Economic Freedom . and real estate agencies. The common EU weighted average tariff rate was 1. and the judiciary and civil service are highly professional. Relatively stable prices explain most of the monetary freedom score. an additional 10 percent is deducted from Germany’s monetary freedom score. require licenses. and open to foreign participation. including agricultural and manufacturing subsidies. The insurance sector and capital markets are sophisticated. or access to foreign exchange. including consumption and transfer payments.4 percent of its total revenues from state-owned enterprises and government ownership of property. passenger transport businesses. real estate purchases. and other market access restrictions. L L L L L L L L L L 50 100 INVESTMENT FREEDOM — 90% Foreign and domestic investors receive equal treatment. However. MONETARY FREEDOM — 81.6% Germany’s trade policy is the same as those of other members of the European Union. Various nontariff barriers are reflected in EU and German government policy. and the government received 1. It also regulates prices for pharmaceuticals. government spending equaled 47 percent of GDP.5 90 50 90 82 54. Contractual agreements are secure. PROPERTY RIGHTS — 90% Property is well protected in Germany. and other public services. Obtaining a business license is simple. all of which serves as a disincentive to invest and create jobs. and the ability of businesses to fire workers is subject to rigid conditions. and the top corporate tax rate is 25 percent (raised to 26.GERMANY’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 88. are very high.6% The labor market operates under restrictive employment regulations that seriously hinder employment and productivity growth.3 percent (a reduced top income tax rate of 42 percent plus a 5.7 percent in 2005. and foreign investors may access credit freely. 100 = most free. Germany’s wages and fringe benefits remain among the world’s highest. and close a business is protected by the national regulatory environment. and publicly owned banks linked to state and local governments account for nearly 50 percent. and regulations and bureaucratic procedures can be difficult.8 percent. FREEDOM FROM CORRUPTION — 82% Corruption is perceived as minimal. deep. FINANCIAL FREEDOM — 50% Germany’s financial system is open and modern.2% Starting a business takes an average of 24 days. quotas. Reforms implemented in recent years focus on reducing welfare benefits for the unemployed. FREEDOM FROM GOVERNMENT — 48% Total government expenditures in Germany. distorting the prices of agricultural products. Regulations are generally transparent and consistent with international norms. Germany’s regulatory system is transparent and consistent. Other taxes include a value-added tax (VAT) and a trade tax that varies from 13 percent to 20 percent.6 74. Consequently. labor. LABOR FREEDOM — 54. Some businesses. electricity. or regulations beyond EU standards on selected items. There are no restrictions on capital transactions or current transfers. The top income tax rate is 44.3% Germany has a high income tax rate and a moderate corporate income tax rate. including certain financial institutions. The government is somewhat skeptical of takeovers of key German companies by foreign groups. Non-European banks need a license to open a branch or subsidiary. and closing a business is easy. Consequently. an additional 20 percent is deducted from Germany’s trade freedom score. There are no serious limitations on new projects. The government also applies standards. In the most recent year.

S. and about onethird of total exports (predominantly cocoa and timber). aluminum. while lower than in other African countries. food How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage.6 @ @ @ @ @@ @@ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @@ @ @ @ @ @@ @ @ @ @@ @ @ @ @ Ghana has good scores for fiscal freedom. Commercial regulations are extensive.5 percentage points higher than last year. and overall tax revenue is not excessive as a percentage of GDP. petroleum. Ghana could make significant progress in several other areas such as investment freedom. comp.7 million GDP (PPP): $48. which makes it the world’s 91st freest economy. remains a problem. Over 300 state-owned enterprises (of about 350) have been privatized. tuna. almost half of gross domestic product. timber. This inconsistency is due more to an inefficient public sector than to outright corruption.6% FDI (net inflow): $139. property rights.8% growth in 2004 4. and the labor market is inflexible.1 percent free. and monetary freedom.1% free 100 80 Sub-Saharan Africa Average = 54.org/index. Regulatory barriers can be onerous. Its overall score is 1. The top income and corporate tax rates are fairly low. Ghana is ranked 11th out of 40 countries in the sub-Saharan Africa region.5 billion Primarily gold. however.7% 5-yr. but Ghana has made progress in reducing price subsidies and state distortions of the market. labor freedom. Ghana restricts foreign investment in several sectors. BACKGROUND: Ghana was the first colony in sub-Saharan Africa to gain independence.0 billion Exports: $3. and the weak rule of law means that consistent judicial adjudication cannot be guaranteed. manganese ore.) External Debt: $7. freedom from government. according to our 2007 assessment. The government has made improving the infrastructure a priority and has generally followed through on economic reform. The amount of revenue from government-owned businesses is likewise relatively small. bauxite.5 billion 5.7 World Average = 60. and freedom from corruption. Inflation is fairly high.GHANA Rank: 91 Regional Rank: 11 of 40 hana’s economy is 58.8 billion (4% from the U. growth $2. Political discourse is deepening with the development of private radio and mobile telephony. and its overall score is slightly higher than the regional average. cocoa. 60 40 20 0 1995 2007 QUICK FACTS Population: 21. ann. diamonds Imports: $5.3 million (gross) Official Development Assistance: Multilateral: $571 million Bilateral: $1. G The economy is 58. partially reflecting new methodological detail. and corruption.4 billion Primarily capital equipment. 189 . Agriculture accounts for over half of employment. financial freedom.240 per capita Unemployment: 10% (1997 estimate) Inflation (CPI): 12.

6 percent between 2003 and 2005. Entrepreneurship should be easier for maximum job creation. Daily minimum wages. it influences prices through the regulation of state-owned utilities and controls prices for petro- 190 2007 Index of Economic Freedom . FREEDOM FROM CORRUPTION — 40% Corruption is perceived as significant. Five commercial banks are foreign-owned and play a leading role in the sector. 100 = most free. taxi services. FINANCIAL FREEDOM — 50% Ghana’s financial system is small and dominated by banking. The courts are slow in disposing of cases and at times face challenges in enforcing decisions. cumbersome and non-transparent regulations. Although the government has made significant progress toward privatizing the public sector. MONETARY FREEDOM — 70% Inflation in Ghana is relatively high. The laws restrict petty trading. Consequently. and three development banks. gambling and lotteries. Privatization has been slow in recent years. Residents may hold foreign exchange accounts. PROPERTY RIGHTS — 50% Ghana’s judicial system suffers from corruption. Other taxes include a value-added tax (VAT) and a capital gains tax.9 58 88.4 72 70 50 50 50 40 48. There were 18 banks as of 2005: 10 commercial banks. beauty salons. Both the top income tax rate and the top corporate tax rate are 25 percent. FISCAL FREEDOM — 88.3 percent of GDP. which were raised in recent years. including two state-owned companies that dominate the sector. an additional 5 percent is deducted from Ghana’s trade freedom score to adjust for measures that distort domestic prices.3 percent. The stock exchange is small. Consequently. = world average BUSINESS FREEDOM — 54.4% Ghana has moderate tax rates. The government also supports domestic private enterprise with financial incentives and tax holidays as part of its export promotion policies. albeit less so than those of some other African countries. L L L L L L L L L L 50 100 INVESTMENT FREEDOM — 50% The foreign investment code eliminates screening of foreign investment. Relatively unstable prices explain most of the monetary freedom score. Ghana ranks 65th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. are moderate. and the judiciary is subject to political influence. and barbershops to Ghanaians. Ghana is a member of the Economic Community of West African States (ECOWAS). The Bank of Ghana must approve most capital transactions.2% The labor market operates under highly restrictive employment regulations that hinder employment and productivity growth. and non-residents may hold them subject to restrictions.9% Starting a business takes an average of 81 days. and does not discriminate against foreign investors. and many state owned enterprises perform poorly. Plans to establish a West African Monetary Zone (WAMZ) with four other countries based on a second West African common currency have been delayed. an additional 20 percent is deducted from Ghana’s trade freedom score to account for these non-tariff barriers. guarantees capital repatriation. In the most recent year. and import bans and restrictions.GHANA’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 54. labor. TRADE FREEDOM — 58% Ghana’s weighted average tariff rate was 11 percent in 2004. The non-salary cost of employing a worker can be high. and close a business is limited by the national regulatory environment. Although the government has focused on streamlining regulations as part of its strategy of empowering the private sector. and employers. Obtaining a business license and closing a business are difficult. averaging 15. are set by a tripartite commission composed of representatives of government. and foreign direct investment faces a minimum capital requirement.3 percent of its total revenues from state-owned enterprises and government ownership of property. LABOR FREEDOM — 48. government spending equaled 33. largely because of resource constraints and institutional inefficiencies.2 0 leum products. The government owns over 34 percent of the Ghana Commercial Bank (the largest domestic bank) and owns two other banks. operate. including consumption and transfer payments. and the government received 6. compared to the world average of 48 days. FREEDOM FROM GOVERNMENT — 72% Total government expenditures in Ghana. and foreign investors face some restrictions. The overall freedom to start. Non-tariff barriers include special import fees and taxes. There were 19 insurance companies in 2004. In the most recent year. and dismissing a redundant employee is costly and difficult. Payments and current transfers are subject to restrictions. bureaucratic processes remain slow. five merchant banks. overall tax revenue as a percentage of GDP was 22. which promotes regional trade and economic integration. The process to set up a business requires compliance with regulations and procedures of at least five government agencies.

4 billion Primarily machinery.5 billion 4.5% (2004 estimate) Inflation (CPI): 2.6 20 0 1995 2007 QUICK FACTS Population: 11. but trade suffers from numerous non-tariff barriers. As a member of the European Union.6% free 100 80 @ @@ @@ @ @ @@ @ @ @ @@ @ @ @ @ @ @ @@ @ @ @@ @ @@ @ @ @ @ @ @ @ @ @ @ As a developed nation. Corruption within state enterprises and the country’s inefficient bureaucracy continues to deter foreign investors. manufactured goods. but the sharp decline in financial assistance from the EU that is scheduled for 2007 makes implementation of the economic reforms promised by Prime Minister Costas Karamanlis and his New Democracy Party a matter of some urgency.9% FDI (net inflow): $744. The modernization of infrastructure and increased tourism associated with the 2004 Olympic Games led to strong economic growth in recent years. but government distortions in the agricultural sector persist. Greece scores highly in surprisingly few areas. Freedom from government. Greece is ranked 36th out of 41 countries in the European region. growth $22. ann. petroleum products. Greece has a standardized monetary policy that yields relatively low inflation. Its overall score is 0. The average tariff rate is low. as firing employees is difficult and keeping them on the payroll is costly. Although exports of textiles and foodstuffs have increased. and labor freedom could be improved.7% growth in 2004 4. BACKGROUND: Since the abolition of the monarchy in 1974.205 per capita Unemployment: 10.GREECE Rank: 94 Regional Rank: 36 of 41 reece’s economy is 57. 191 . chemicals How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage.8 billion Primarily food and beverages.5 million Official Development Assistance: Multilateral: None Bilateral: None External Debt: $75.5 percentage point lower than last year. and its overall score is much lower than the regional average. government spending is exceptionally high. transport equipment. chemicals. comp. according to our 2007 assessment. As in many other European welfare states. Trade freedom and monetary freedom are the best parts of the economy. financial freedom.4% 5-yr.1 million GDP (PPP): $245. particularly tourism. which makes it the world’s 94th freest economy. Greece still relies heavily on its services sector. textiles Imports: $61.2 billion (2005 estimate) Exports: $48.org/index. 60 40 Europe Average = 67. fuels. A highly restrictive labor market is another problem.6 percent free. G The economy is 57. Greece has a high top income tax rate but is moving to reduce its relatively low corporate tax rate to 25 percent. partially reflecting new methodological detail. Greece has been governed by a parliamentary democracy.5 World Average = 60. and fiscal freedom also scores well.

but the government restricts both foreign and domestic investment in utilities. mining. regulatory and licensing restrictions. TRADE FREEDOM — 76. distorting the prices of agricul- 192 2007 Index of Economic Freedom . Relatively moderate prices explain most of the monetary freedom score. broadcasting. are very high. LABOR FREEDOM — 48.GREECE’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 70. State-controlled banks are highly exposed to state-owned enterprises that are financially unhealthy.6% Greece’s trade policy is the same as those of other members of the European Union. Between 2003 and 2005.3 50 40 50 43 48. and non-EU investors receive less advantageous treatment than other investors in the banking.8 percent of its total revenues from state-owned enterprises and government ownership of property. Greece ranks 47th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. Consequently. and the top corporate tax rate is 29 percent effective January 2006.5 45. and the government received 0. overall tax revenue as a percentage of GDP was 37. The common EU weighted average tariff rate was 1. Six large commercial groups that operate as private universal banks now dominate the system.2 76. The state dominated the banking system in the 1990s. The government also regulates prices for pharmaceuticals and transportation and retains the right to set a ceiling on retail petroleum prices.3% Greece is a member of the euro zone. PROPERTY RIGHTS — 50% FISCAL FREEDOM — 74. Enforcing property and contractual rights through the court system is time-consuming and often problematic. The non-salary cost of employing a worker is high. but privatization and mergers have reduced the level of state influence. The overall freedom to start. An inefficient bureaucracy is one of the strongest impediments to foreign investment. or repatriation of profits. Consequently. Penalizing overtime. Obtaining a business license and closing a business are relatively simple. The insurance sector is small. A new labor law passed in 2005 aims at providing greater flexibilities to employers. an additional 10 percent is deducted from Greece’s monetary freedom score to account for these policies. 100 = most free. Investments in border regions are restricted to EU residents. including consumption and transfer payments. The top income tax rate is 40 percent. FINANCIAL FREEDOM — 40% Greece has a relatively efficient and well-developed financial system. The judiciary is supposed to be nonpartisan but tends to reflect the political sensibilities of the government in power. FREEDOM FROM CORRUPTION — 43% Corruption is perceived as significant. Other taxes include a value-added tax (VAT) and a tax on interest. government spending equaled 48.2% Starting a business takes an average of 38 days. transfers. maritime. Entrepreneurship should be easier for maximum job creation. compared to the world average of 48 days.6 74. There are no restrictions or controls on payments. although the state still directly controls one bank and indirectly controls two other large banks that account for a large percentage of banking assets. Various non-tariff barriers are reflected in EU and Greek government policy.5% Greece has a high income tax rate and a moderate corporate tax rate. In the most recent year. and dismissing a redundant employee can be difficult. As a participant in the EU’s Common Agricultural Policy. Bureaucratic obstacles and slowness are still obstacles to business. and corruption raises the cost of trade. In the most recent year.5 0 tural products. operate. At the end of 2004. labor codes limit working hours and part-time employment.3% Total government expenditures in Greece. real estate transactions. Expropriation of property is unlikely. an additional 20 percent is deducted from Greece’s trade freedom score. MONETARY FREEDOM — 78. FREEDOM FROM GOVERNMENT — 45. and close a business is relatively well protected by the national regulatory environment. and other market access restrictions. and air transport sectors.7 percent in 2005. = world average BUSINESS FREEDOM — 70. Greece’s weighted average annual rate of inflation was 3.5% The labor market operates under highly restrictive employment regulations that hinder employment and productivity growth. The corporate tax rate will be lowered to 25 percent within the next three years. the government subsidizes agricultural production. L L L L L L L L L L 50 100 INVESTMENT FREEDOM — 50% Greece officially welcomes foreign investment. including agricultural and manufacturing subsidies.4 percent. Both residents and non-residents may hold foreign exchange accounts.3 percent.3 78. Regulations and bureaucratic procedures can be difficult. Seeking legal advice and assistance before entering into a lawsuit is critical. there were 62 domestic and foreign banks and special credit institutions.3 percent of GDP. and capital markets are well established.

petroleum. although firing an employee can be costly. freedom from government. and overall tax revenue is relatively low as a percentage of GDP. Guatemala is ranked 16th out of 29 countries in the Americas.7% growth in 2004 2. should boost trade and employment prospects in the formal sector. and income from state-owned businesses is negligible. G The economy is 61. comp. growth $4. cardamom Imports: $8. and corruption is extensive.6 20 0 1995 2007 QUICK FACTS Population: 12. ratified in 2005. Government expenditures are very low (almost 10 percent of GDP). Many sectors of the economy are off-limits to foreign investors. About 75 percent of the population lives below the poverty line. The government has withdrawn from ownership of services and energy utilities.5% (2003 estimate) Inflation (CPI): 7. investment freedom.6% 5-yr.7 million (gross) Official Development Assistance: Multilateral: $37 million Bilateral: $241 million (33% from the U. and an inefficient bureaucracy further repels foreign capital. electricity 193 .S.0 billion 2.313 per capita Unemployment: 7.GUATEMALA Rank: 68 Regional Rank: 16 of 29 uatemala’s economy is 61. and licensing procedures are burdensome.) External Debt: $5. BACKGROUND: Guatemala is Central America’s most populous country. Personal and corporate tax rates are moderate. Its overall score is 0. which makes it the world’s 68th freest economy.2 percent free. sugar. ann. and a weak judiciary remains plagued by corruption.5 billion Exports: $4.4% FDI (net inflow): $154. according to our 2007 assessment. apparel.3 million GDP (PPP): $53. and the Dominican Republic–Central America Free Trade Agreement (DR–CAFTA). grain. labor freedom. and its overall score is slightly lower than the regional average. and both areas need to be improved to nurture investment. machinery and transport equipment. partially reflecting new methodological detail. The labor market is fairly flexible. The scores for property rights and corruption are lowest of all. and monetary freedom. Despite inflationary problems.3 World Average = 60. How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage.5 billion Primarily fuels. the government has wisely avoided direct price controls.org/index. Closing a business is difficult. fertilizers. fruits and vegetables. Guatemala scores poorly in business freedom. and 50 percent of the labor force works in agriculture.2% free 100 80 @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @@ @ @ @ @@ @ @ @@ @ @@ @ @ @ @ @@ Guatemala receives high scores in fiscal freedom. bananas. 60 40 Americas Average = 62.6 percentage point higher than last year. and financial freedom.6 billion Primarily coffee. The judiciary is not an effective arbiter of cases. construction materials. less than one-third of all age-appropriate youth are enrolled in secondary school. High crime rates and rising youth gang membership challenge Guatemala’s police.

compared to the world average of 48 days.5 96. Consequently. 194 2007 Index of Economic Freedom .9 percent between 2003 and 2005.4 72. a high crime rate.1% Starting a business takes an average of 30 days. In the most recent year. a capital gains tax. FREEDOM FROM CORRUPTION — 25% Corruption is perceived as widespread. Land invasions by squatters are increasingly common in rural areas. TRADE FREEDOM — 70. As of November 2005. FREEDOM FROM GOVERNMENT — 96. Non-tariff barriers to trade include regulatory restrictions. Foreign borrowers are able to secure domestic credit. and corruption impede investment.2 50 60 30 25 68 0 INVESTMENT FREEDOM — 50% Guatemala grants foreign investors national treatment and allows the full repatriation of profits. Guatemala ranks 117th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. There are some restrictions on increasing or contracting the number of work hours.9 percent in 2004.4 percent of GDP. Civil cases can take as long as a decade to resolve. 24 domestic banks and one foreign bank were operating. PROPERTY RIGHTS — 30% Dispute resolution through Guatemala’s judicial system is time-consuming and often unreliable. The government permits foreign currency to be used as legal tender for accounts.2 86. petroleum operations. Residents and non-residents may hold foreign exchange accounts. averaging 7. In the most recent year. which also makes it easier for the government to intervene in troubled banks. and a tax on interest. petroleum. The third and tenth largest banks are partially or fully owned by the government and together account for about 14 percent of banking assets. MONETARY FREEDOM — 72. FINANCIAL FREEDOM — 60% Guatemala’s financial system is small and dominated by bank-centered financial conglomerates. Time-consuming administrative procedures. and close a business is restricted by the national regulatory environment. newspapers and commercial radio stations.5% Guatemala has moderate tax rates. Bank supervision and transparency have been strengthened under a legal and regulatory framework adopted in 2002. FISCAL FREEDOM — 86.2% Guatemala’s weighted average tariff rate was 4. and natural resources are considered the property of the state. an additional 20 percent is deducted from Guatemala’s trade freedom score to account for these nontariff barriers. but it does subsidize numerous economic activities and products. are low. such as fuel and housing construction. There are also 20 private finance companies (two of them inactive) and 11 authorized offshore banks. and transfers. and squatters can be difficult to evict. overall tax revenue as a percentage of GDP was 10. There are no restrictions or controls on payments. operate. some limitations on market access in the services sector. Minerals. L L L L L 50 L L L L L 100 100 = most free.8 percent of its total revenues from state-owned enterprises and government ownership of property. Obtaining a business license can be very difficult. The pace of privatization has been slowed by the government’s indecisiveness. Capital markets are small and involved primarily in trading government debt. mining and forestry operations. Licenses to foreign investors to provide professional services are restricted. an additional 10 percent is deducted from Guatemala’s monetary freedom score to adjust for measures that distort domestic prices. Judicial corruption is not uncommon.1 percent.2% Inflation in Guatemala is relatively high. government spending equaled 11. The non-salary cost of employing a worker is moderate. including consumption and transfer payments. and a burdensome and corrupt customs process. Both the top income tax rate and the top corporate tax rate are 31 percent. Entrepreneurship should be easier for maximum job creation.1 70. Other taxes include a value-added tax (VAT). = world average BUSINESS FREEDOM — 54. and closing a business is difficult. Bureaucratic impediments and slowness are persistent problems.GUATEMALA’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 54. The overall freedom to start. and the government received 1. Consequently. The government maintains few price controls. arbitrary bureaucratic impediments and judicial decisions.4% Total government expenditures in Guatemala. and real estate. and monetary instruments. transactions. as is foreign ownership of domestic airlines. LABOR FREEDOM — 68% The labor market operates under relatively flexible employment regulations that could be improved to enhance employment and productivity growth. but dismissing a redundant employee is relatively costly. salaries. Relatively high and unstable prices explain most of the monetary freedom score.

and labor freedom. grain and other food 195 . growth $2. coffee. which makes it the world’s 111th freest economy.4 percentage points higher than last year. but tax revenue is low as a percentage of GDP. The government is marked by corruption and lack of transparency. comp. metals.1% free 100 80 Sub-Saharan Africa Average = 54. Bureaucratic inefficiency and corruption affect virtually all areas of the economy. Electricity and water shortages are common.6 million Primarily petroleum products. despite nominal government efforts to improve. and diamonds is important to the economy. diamonds. G The economy is 55. Guinea possesses half of the world’s bauxite reserves. and state-owned businesses do not account for a significant portion of total revenues. property rights.7% growth in 2004 2.5% FDI (net inflow): $100 million (gross) Official Development Assistance: Multilateral: $157 million Bilateral: $202 million (24% from the U. The labor market is highly flexible. fish. Instability in the Ivory Coast and Liberia affects the social. partially reflecting new methodological detail.5 billion Exports: $810.1 percent free. The judiciary is subject to pervasive political interference and corruption at all levels. transport equipment.6 @ @ @ @ @ @ @ @ @ @ @ @ @ @@ @ @ @ @ @ @@ @ @ @ @ @ @@ @ @ @ @ Guinea scores well in fiscal freedom.S.180 per capita Unemployment: n/a Inflation (CPI): 17. monetary freedom.7 World Average = 60.) External Debt: $3. As a developing sub-Saharan African country. and the lack of basic infrastructure exacerbates the corruption and inefficiency of the bureaucracy. gold. machinery. according to our 2007 assessment.org/index. Its overall score is 1. and its overall score is equal to the regional average. alumina. Guinea faces challenges in such areas as investment freedom. ann. and business freedom. agricultural products Imports: $963.2 million GDP (PPP): $20. More than three-quarters of the population is engaged in subsistence agriculture. political. textiles. Most opposition parties are not represented because they boycott the elections.1 billion 2. and the mining of aluminum. Guinea is ranked 18th out of 40 countries in the sub-Saharan Africa region. Foreign investment is subject to an opaque process of government approval.8% 5-yr. freedom from government. BACKGROUND: President Lansana Conté has ruled Guinea since seizing power in 1984. Relatively high tax rates on income and corporations dampen its overall fiscal score.9 million Primarily bauxite.GUINEA Rank: 111 Regional Rank: 18 of 40 uinea’s economy is 55. Government expenditures are also low. How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. and economic situation. 60 40 20 0 1995 2007 QUICK FACTS Population: 9. He won his first presidential election in 1993 and a third term in 2003. gold. although the non-salary cost of employing a worker is high.

9 percent. Both residents and non-residents may hold foreign exchange accounts. government spending equaled 16. including consumption and transfer payments.3% Guinea has high tax rates. and foreign banks dominate the sector.6 83. and repatriation is controlled. and a number of foreign exchange bureaus and microfinance institutions. although growing in number and importance. must be authorized by the central bank. The government influences prices through the regulation of state-owned enterprises and administrative price controls for cement.4 57. and close a business is seriously restricted by the national regulatory environment. Nontariff barriers include a lack of foreign currency for transacting formal trade.6% Guinea’s average tariff rate was 12. high levels of corruption. The financial sector consists of six deposit-taking banks. water. Guinea’s banking system remains fragile. FREEDOM FROM GOVERNMENT — 92. Overall. Regulations on increasing or contracting the number of work hours are rigid. Payments and transfers are subject to government approval in some cases. Relatively high and unstable prices explain most of the monetary freedom score. averaging 26. and electricity. 196 2007 Index of Economic Freedom . and an apprenticeship tax. and supervision is weak. Regulation can be somewhat burdensome. FINANCIAL FREEDOM — 60% Guinea’s financial system is small and dominated by banking. = world average BUSINESS FREEDOM — 39. Entrepreneurs complain that poorly trained magistrates.5% Inflation in Guinea is high.5% The labor market operates under relatively flexible employment regulations that do not hinder employment or productivity growth. The application of commercial law lacks both transparency and consistency. compared to the world average of 48 days.5 30 60 30 30 73.3 92. a lack of basic services infrastructure. and corruption in the customs process. Guinea is a member of the Economic Community of West African States (ECOWAS). but much remains to be done.5 0 INVESTMENT FREEDOM — 30% Investment is deterred by bureaucratic inefficiency. risk-averse. which promotes regional trade and economic integration.3 percent between 2003 and 2005.5 percent of GDP. Both the top income tax rate and the top corporate tax rate are 35 percent. it established an arbitration court in 1999. petroleum products. state-owned import and export monopolies. and opaque application procedures that allow for significant corruption. four insurance companies. but residents may hold such accounts abroad only with central bank approval. There is no stock market. Obtaining a business license is very difficult. two cooperative banks. Other taxes include a value-added tax (VAT). Microfinance institutions. import taxes. and nepotism plague the administration of justice. including all real estate transactions and all outward direct investment. an additional 10 percent is deducted from Guinea’s monetary freedom score to adjust for measures that distort domestic prices. There are few restrictions on banks. PROPERTY RIGHTS — 30% Property is weakly protected in Guinea. account for only about 3 percent of sector assets.3 54. The government intends to reform the judiciary with the help of international donor agencies. operate. The overall freedom to start. All capital transfers through the official exchange market and many capital transactions. Consequently. LABOR FREEDOM — 73. Entrepreneurship should be easier for maximum job creation. subsidies. L L L L L 50 L L L L L 100 100 = most free. and the government received 3. but dismissing a redundant employee is costless. It also provides subsidies for rice importers. In the most recent year. Consequently.4% Total government expenditures in Guinea. FISCAL FREEDOM — 83. a social security institution. and newspapers. overall tax revenue as a percentage of GDP was 7. FREEDOM FROM CORRUPTION — 30% The difficulties involved in registering a business have resulted in the existence of a very large informal economy. a tax on insurance contracts.3% Starting a business takes an average of 49 days. MONETARY FREEDOM — 57. TRADE FREEDOM — 54. an additional 20 percent is deducted from Guinea’s trade freedom score to account for these non-tariff barriers. television. To that end. The non-salary cost of employing a worker is high. are low. and unable to meet the private sector’s development needs. Foreign investors are restricted from majority ownership in radio.GUINEA’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 39. Much of the population finds the informal sector the only place in which to obtain income. regulatory controls.7 percent in 2005. In the most recent year. and closing a business is difficult.9 percent of its total revenues from state-owned enterprises and government ownership of property.

A September 2003 military intervention forced President Kumba Yala to resign. according to our 2007 assessment.) External Debt: $765 million Exports: $71 million (2003 estimate) Primarily cashew nuts.4 percentage points lower than last year. but the top corporate rate is higher. and legislative elections were held in March 2004. growth $722 per capita Unemployment: n/a Inflation (CPI): 0.1 billion 2. The top income tax is a low 20 percent. In August 2005. financial freedom.2% growth in 2004 0. which makes it the world’s 148th freest economy.8% FDI (net inflow): $4. Agriculture. Taxes are not excessive as a percentage of GDP. G The economy is 45. former President João Bernardo Vieira was declared the winner of the presidential election. investment freedom. comp.3% 5-yr. although it does influence the market slightly through state-owned enterprises. Guinea–Bissau has the West African Economic and Monetary Union’s weakest financial system. Cashew nuts are the primary export.5 million (2003 estimate) Primarily food. petroleum products 197 . Weak rule of law jeopardizes the protection of property rights. and its overall score is lower than the regional average. shrimp. the infrastructure is dilapidated.7% free 100 80 Sub-Saharan Africa Average = 54. and corruption is substantial.org/index. Corruption is so rampant that the informal market (mainly diamonds) dwarfs the legitimate market.S. Instability has greatly hindered economic growth. 60 40 20 0 1995 2007 QUICK FACTS Population: 1. Normal business operations are intensely difficult. forestry.5 million GDP (PPP): $1. sawn lumber Imports: $101.6 @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ Guinea–Bissau scores well in fiscal freedom.5 million Official Development Assistance: Multilateral: $59 million Bilateral: $29 million (0. How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. The military appointed a civilian transitional government. Partially as a consequence.4% from the U. Its overall score is 1. and freedom from corruption all score poorly. Guinea–Bissau’s business freedom. Inflation is low. property rights.7 percent free. and the government directly distorts prices in only one area (cashew nuts). palm kernels. Guinea–Bissau is ranked 37th out of 40 countries in the sub-Saharan Africa region. and somewhat well in monetary freedom.7 World Average = 60. labor freedom. partially reflecting new methodological detail. machinery and transport equipment. BACKGROUND: Guinea–Bissau is one of the world’s poorest countries and has a history of instability. ann. and fishing account for the bulk of GDP and employ most people.GUINEA–BISSAU Rank: 148 Regional Rank: 37 of 40 uinea–Bissau’s economy is 45. Significant restrictions on foreign investment combine with domestic regulations and an inflexible labor market to create a business-hostile climate. peanuts.

L L L L L L L L L L 50 100 100 = most free.6 percent in 2004. LABOR FREEDOM — 37. operate. MONETARY FREEDOM — 80. The government influences prices through the regulation of state-owned utilities and controls prices for cashew nuts. In the most recent year. The police often resolve disputes.9% Total government expenditures in Guinea–Bissau. Three banks were operating in the first half of 2006. including irregularities in the valuation of imports and difficulty tracking and monitoring goods. The top income tax rate is 20 percent. The judiciary is subject to executive influence and control. and foreign investors participate in the banking sector.7 40 40 20 10 37. The BCEAO governs banking and other financial institutions. The government. The investment code provides for investment incentives and guarantees against nationalization and expropriation. Traditional practices still prevail in most rural areas. as is trade in food and fishing products. including the country’s first microfinance institution (a subsidiary of a regional development bank) that began operations at the end of 2005 and the new Banco da União that opened in early 2006 with the government.6% Guinea–Bissau has a low income tax rate but a high corporate tax rate.8 88. the country’s primary export. The overall freedom to start. Abuses in customs. compared to the world average of 48 days. and the government received 5.6 59.4 percent of GDP. overall tax revenue as a percentage of GDP was 9. and dismissing a redundant employee is relatively costly.2 52.GUINEA-BISSAU’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 27. a regional development bank. FINANCIAL FREEDOM — 40% Guinea–Bissau has the weakest. Despite government efforts to streamline the registration process and reduce bureaucracy. including consumption and transfer payments. FREEDOM FROM GOVERNMENT — 59. There is a substantial level of corruption. and an unskilled workforce discourage foreign investment in Guinea–Bissau. Entrepreneurship should be easier for maximum job creation.9 80.2% Starting a business takes an average of 233 days. regional government institutions. Consequently. add to the cost of trade. an additional 10 percent is deducted from Guinea–Bissau’s monetary freedom score to adjust for measures that distort domestic prices.9 percent of its total revenues from state-owned enterprises and government ownership of property. FISCAL FREEDOM — 88.8% Guinea–Bissau’s weighted average tariff rate was 13. a weak infrastructure.1 percent.9% The labor market operates under highly restrictive employment regulations that hinder employment and productivity growth. or transfers of assets. such as personal loans. Relatively low and stable prices explain most of the monetary freedom score.9 0 INVESTMENT FREEDOM — 40% Political and economic instability. Consequently. Trade in smuggled diamonds is very large. an additional 20 percent is deducted from Guinea–Bissau’s trade freedom score to account for these non-tariff barriers. gifts or inheritances. averaging 2. government spending equaled 40. Guinea–Bissau’s labor freedom is one of the 20 lowest in the world. Non-residents may hold foreign exchange accounts with permission of the Central Bank of West African States (BCEAO). and close a business is seriously limited by the national regulatory environment.1 percent between 2003 and 2005. and residents may hold them with permission of the Ministry of Finance and the BCEAO. = world average BUSINESS FREEDOM — 27. are high. poorly paid. TRADE FREEDOM — 52. and closing a business is very difficult. PROPERTY RIGHTS — 20% Protection of property in Guinea–Bissau is extremely weak. and the WAEMU as shareholders. The non-salary cost of employing a worker is high. and persons who live in urban areas often bring judicial disputes to traditional counselors to avoid the costs and bureaucratic impediments of the official system. least developed financial sector among the eight members of the West African Economic and Monetary Union (WAEMU). There is a regional development bank as well as a regional stock exchange based in the Ivory Coast. Capital transfers to most foreign countries are restricted. Judges are poorly trained. In the most recent year. The government must approve most personal capital movements between residents and non-residents. A fourth bank is expected to open in late 2006. The eight BCEAO member countries use the CFA franc. obtaining a business license is difficult. FREEDOM FROM CORRUPTION — 10% Guinea–Bissau’s informal market is so large that it eclipses the legal market. and subject to corruption. and the top corporate tax rate is 35 percent. pegged to the euro. 198 2007 Index of Economic Freedom .7% Inflation in Guinea–Bissau is relatively low.

which makes it the world’s 90th freest economy. BACKGROUND: Colonized by the Dutch and later by the British. food 199 .3 World Average = 60. shrimp.2% free 100 80 @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @@ @ @@ 60 @ Guyana does not rank strongly in any category but scores best in monetary freedom. 2006.6 20 0 1995 2007 QUICK FACTS Population: 0.GUYANA Rank: 90 Regional Rank: 20 of 29 uyana’s economy is 58. The substandard rule of law means that property rights are protected only erratically.1% (2000) Inflation (CPI): 4.7% FDI (net inflow): $48. bauxite. Recent high-profile killings have highlighted a growing crime problem and threaten public order: Minister of Agriculture Satyadeo Sawh. and its overall score is slightly lower than the regional average. and corruption is a problem in all areas of government. labor freedom. molasses.2 billion (2002) Exports: $748. according to our 2007 assessment. alumina. and these restrictions. Guyana gained its independence in 1966. As a developing nation. rice. The top income and corporate tax rates are high but not excessive. gold.4 million (gross) Official Development Assistance: Multilateral: $95 million Bilateral: $81 million (24% from the U. G The economy is 58.439 per capita Unemployment: 9. Its overall score is 1.6% 5-yr. Significant restrictions on foreign investment are slowly being addressed. property rights. Inflation is below 10 percent.3 billion 1. Investment freedom. was assassinated in April 2006.4 million Primarily manufactures.S. comp. and Guyana benefits from a highly flexible labor market. Parliamentary and presidential elections originally scheduled for August 4.6% growth in 2004 0. partially reflecting new methodological detail and partly reflecting a sharp drop in labor freedom. Support for the two major political parties is highly polarized by ethnic tensions. How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage.4 percentage points lower than last year.) External Debt: $1. rum. and freedom from corruption all score poorly.0 million Primarily sugar. Guyana faces substantial economic challenges. and overall tax revenue is moderate as a percentage of GDP. business freedom. and fiscal freedom. substantially limit Guyana’s economic freedom.8 million GDP (PPP): $3. combined with an inefficient bureaucracy. for example. growth $4. were delayed because of problems with voter registration. 40 Americas Average = 62. and any attempts at reform have been made only under framework agreements with international organizations. timber Imports: $782.org/index. petroleum. but employing labor is relatively easy. Guyana’s economy depends mainly on agriculture and mining. Firing a worker can be difficult. ann. Guyana is ranked 20th out of 29 countries in the Americas.2 percent free. machinery.

Consequently. an additional 20 percent is deducted from Guyana’s trade freedom score to account for these non-tariff barriers. MONETARY FREEDOM — 74% Inflation in Guyana is relatively high. but closing a business can be very difficult. overall tax revenue as a percentage of GDP was 29. Obtaining a business license is relatively simple. In the most recent year. although the government remains cautious about approving new foreign investment and encourages joint ventures with the government. Guyana also has six insurance companies and a small stock exchange. Most capital transactions are unrestricted. customs corruption. government spending equaled 35.5 percent in 2003. FREEDOM FROM CORRUPTION — 25% Corruption is perceived as widespread.9 percent. import taxes. The top income tax rate is 33.GUYANA’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 57 57 78.1% Total government expenditures in Guyana. PROPERTY RIGHTS — 40% Guyana’s judicial system is often slow.9 percent of GDP. The non-salary cost of employing a worker is low. FREEDOM FROM GOVERNMENT — 66.3 percent. roughly equal to the world average of 48 days. The last state-owned bank. Relatively high and unstable prices explain most of the monetary freedom score. Payments and transfers are not restricted. The approval process can be bureaucratic and non-transparent. FINANCIAL FREEDOM — 60% Guyana’s financial system is small and underdeveloped. and persistent bribery prolong the resolution of court cases unreasonably.5 percent of its total revenues from state-owned enterprises and government ownership of property. The overall freedom to start. are high. an additional 10 percent is deducted from Guyana’s monetary freedom score to adjust for measures that distort domestic prices. There are approximately two dozen credit unions. There are some restrictions on financial activities with non-residents. Law enforcement officials and prominent lawyers question the independence of the judiciary and accuse the government of intervening in some cases. The banking sector dominates the financial system. and burdensome standards and regulations. TRADE FREEDOM — 57% Guyana’s weighted average tariff rate was 11. and close a business is restricted by the national regulatory environment. poor resources. Legislation implemented in 1997 introduced more effective bank regulation and supervision. and the government received 11. Bureaucratic procedures are burdensome and time-consuming. inefficient. delays. operate. but all credit operations are controlled. and the top corporate tax rate is 35 percent. LABOR FREEDOM — 74% The labor market operates under relatively flexible employment regulations that could be improved to enhance employment and productivity growth. Guyana has made progress in removing most price controls and privatizing the large public sector. but the government still influences prices through the regulation of state-owned utilities and enterprises.1 74 50 60 40 25 74 0 INVESTMENT FREEDOM — 50% Guyana has been moving toward a more welcoming environment for foreign investors.4 percent between 2003 and 2005. L L L L L 50 L L L L L 100 100 = most free. but weaknesses remain. A shortage of trained court personnel and magistrates. Nonperforming loans are relatively high at 14 percent. Non-tariff barriers include import-licensing requirements for a relatively large number of products. was sold in 2003. = world average BUSINESS FREEDOM — 57% Starting a business takes an average of 46 days. Guyana’s constitution guarantees the right of foreigners to own property or land. Consequently. FISCAL FREEDOM — 78.5 66. down from 25 percent during the mid-1990s. 200 2007 Index of Economic Freedom . and subject to corruption.5% Guyana has high tax rates. import restrictions. the Guyana National Co-Operative Bank (GNCB). Other taxes include a fuel tax and a sales tax. Residents involved in exporting activities (which are subject to approval) and non-residents are allowed to hold foreign exchange accounts. averaging 6. but dismissing a redundant employee is relatively costly. In the most recent year. including consumption and transfer payments. There are six commercial banks. Guyana ranks 117th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. the two largest of which—the Bank of Nova Scotia and Republic Bank (Guyana)—are foreign-owned.

HAITI Rank: 135 Regional Rank: 27 of 29 aiti’s economy is 52. The top income and corporate tax rates are somewhat high.2 million Primarily manufactures. coffee. ann.S.15 billion (2005 estimate) –3. Government expenditures are also low.4 billion Primarily food. Since gaining its independence from France. Imports: $1. comp. and freedom from corruption. Government policies sustain a dominant tradition of subsistence farming that contributes to the depletion of forests and vegetation. fuels. Its overall score is 2.5 million (gross) Official Development Assistance: Multilateral: $93 million Bilateral: $210 million (44% from the U.8% growth in 2004 –0. Haiti has been ruled by a series of despotic governments.700 per capita (2005 estimate) Unemployment: n/a Inflation (CPI): 22. and its overall score is lower than the regional average. investment freedom. mangoes How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. Starting a business takes four times longer than the world average. but overall tax revenue is low as a percentage of GDP.2 billion Exports: $469.8% 5-yr. Major weaknesses are found in business freedom.4 million GDP (PPP): $14. Overall labor flexibility is impressively high.) External Debt: $1. property rights. and trade freedom. growth $1. 60 40 @ @ @ @ @ @ @ Americas Average = 62. manufactured goods. There are significant restrictions on foreign capital. Rule of law is weak as a result of prolonged political instability.2% free 100 80 @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @@ Haiti has high levels of freedom from government. Haiti is ranked 27th out of 29 countries in the Americas. partially reflecting new methodological detail. President Jean-Bertrand Aristide resigned in February 2004 when his regime collapsed. H The economy is 52. and investment decisions are often subject to the arbitrary will of the bureaucracy. raw materials 201 . oils.4 percentage points higher than last year. Current President René Préval has named a diverse cabinet. and presidential and parliamentary elections were conducted (with outside help) in 2006. machinery and transport equipment. cocoa.3 World Average = 60. which makes it the world’s 135th freest economy. BACKGROUND: Haiti is the Western Hemisphere’s poorest country. Haiti’s judicial system is affected by the crippling corruption in most areas of the public sector. according to our 2007 assessment. although a model democratic constitution was adopted in 1987.2 percent free. and regulation is intrusive. labor freedom.org/index.8% FDI (net inflow): $6.6 20 0 1995 2007 QUICK FACTS Population: 8.

and most commercial disputes are settled out of court. Haiti ranks 155th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. and close a business is seriously restricted by the national regulatory environment. Restructuring of the inefficient state enterprises to reduce their burden on government finances is an important objective. The top income tax rate is 30 percent.3% Haiti has a moderate income tax rate and a high corporate tax rate.2% The labor market operates under relatively flexible employment regulations that could be improved to enhance employment and productivity growth. Unstable prices explain most of the monetary freedom score. which accounted for about 10 percent of banking assets in 2004. The banking sector. In the most recent year. but the government imposes restrictions on the mark-up of some products. or capital transactions. a lack of updated laws to handle modern commercial practices. operate.2 percent of its total revenues from state-owned enterprises and government ownership of property. The sector also includes a development finance institution and two mortgage banks.9 percent in 2003. particularly in electricity. Two foreign-owned banks accounted for a similar level of bank assets. remains undeveloped. Consequently. overall tax revenue as a percentage of GDP was 8.HAITI’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 37.6 74. and a dysfunctional. MONETARY FREEDOM — 62% Inflation in Haiti is high.2 85. and the government received 3. There are no restrictions on payments. public health.3 95. Residents may hold foreign exchange accounts only for specified purposes. Business litigants are often frustrated with the legal process. and pharmaceuticals. stifling entrepreneurship and job creation. foreigners have access to domestic credit. Prices are generally determined by the market. The application of commercial laws is characterized by inconsistency and lack of transparency. The non-salary cost of employing a worker is moderate. corruption.2% Total government expenditures in Haiti. and political instability. Credit is available on market terms. averaging 19. an additional 10 percent is deducted from Haiti’s monetary freedom score to adjust for measures that distort domestic prices. Corruption is perceived as widespread. and non-residents may hold them without restriction.2% Haiti’s simple average tariff rate was 2. and telecommunications. but the process has been slow. The overall freedom to start. For example.7 percent of GDP. and closing a business is very difficult. and import licensing requirements for agricultural products. In the most recent year. import controls. Widespread corruption has allowed disputing parties to purchase favorable outcomes. are low. but dismissing a redundant employee is relatively costly. Obtaining a business license is difficult. import quotas on some food products. bureaucratic inefficiency. FINANCIAL FREEDOM — 40% Haiti’s financial sector is very small and prone to crisis. FISCAL FREEDOM — 85. and prices of petroleum products are strictly controlled. compared to the world average of 48 days. Supervision and regulation of the financial system is poor. consisting of 11 banks overall.2 62 30 40 10 18 70. There are two state-owned banks. PROPERTY RIGHTS — 10% The protection and guarantees that Haitian law extends to investors are severely compromised by weak enforcement mechanisms. transfers.2 0 more than 40 percent. government spending equaled 12. customs corruption. There are restrictions on foreign ownership of land.6% Starting a business takes an average of 203 days. chemicals. TRADE FREEDOM — 74. retailers are prohibited from marking up pharmaceutical products by 202 2007 Index of Economic Freedom . Consequently. resource-poor legal system. = world average BUSINESS FREEDOM — 37. Other taxes include a value-added tax (VAT) and a capital gains tax.9 percent. and the top corporate tax rate is 35 percent. and domestic standards do not comply with internationally recognized accounting standards. lack of transparency. L L L L L 100 100 = most free. an additional 20 percent is deducted from Haiti’s trade freedom score to account for these non-tariff barriers. Unofficial barriers to investment include judicial inadequacies. water. There is no stock market. L L L L L 50 INVESTMENT FREEDOM — 30% Special government authorization is required for some foreign investments. FREEDOM FROM CORRUPTION — 18% FREEDOM FROM GOVERNMENT — 95. Non-tariff barriers include the high cost of shipping goods through inefficient state-owned international seaports. and banks may offer a full range of banking services. including consumption and transfer payments. There are restrictions on increasing or contracting the number of working hours. LABOR FREEDOM — 70.6 percent between 2003 and 2005.

which makes it the world’s 76th freest economy. and three-quarters of the population lives below the poverty line. fruit. Government expenditures are similarly moderate.3 percent free. peaceful democratic elections have been held regularly since 1981. Personal and corporate income tax rates are fairly low. Honduras suffers from weak property rights. Starting a business takes about as long as the international average. palm oil. investment freedom. BACKGROUND: Honduras is one of Central America’s poorest nations. and the estimated unemployment rate is 28 percent. partially reflecting new methodological detail. and violent crime. fuels. and a growing clothing-assembly industry. according to our 2007 assessment. and an economy that once subsisted on coffee and banana exports has been diversified to include shrimp.1% FDI (net inflow): $293 million (gross) Official Development Assistance: Multilateral: $363 million Bilateral: $337 million (33% from the U. freedom from corruption.6 20 0 1995 2007 QUICK FACTS Population: 7. industrial raw materials. and financial freedom. shrimp. Honduras is ranked 19th out of 29 countries in the Americas. gold. The government has met targeted macroeconomic objectives and is reducing debt under World Bank and International Monetary Fund initiatives.7 percentage point higher than last year. Ongoing problems include drug trafficking.3 billion 4. Honduran financial freedom is boosted by the developing banking sector.3 billion Exports: $3. freedom from government.org/index. 203 .HONDURAS Rank: 76 Regional Rank: 19 of 29 T he economy of Honduras is 60. bananas. chemical products.876 per capita Unemployment: 28% (2005 estimate) Inflation (CPI): 8.0 million GDP (PPP): $20. although the level of revenue from state-owned businesses is significant. youth gangs. lobster. The economy is 60. but closing a business and obtaining commercial licenses are difficult. Public administration is inefficient and widely corrupt. and its overall score is slightly lower than the regional average. Honduras receives high scores for fiscal freedom.6% growth in 2004 3.4 billion Primarily machinery and transport equipment. Approximately 34 percent of the labor force works in agriculture. food How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. tourism.3 World Average = 60. lumber Imports: $4.S.8% 5-yr. melons. and overall tax revenue is just 17 percent of GDP. However. The rule of law is undermined by weak basic security. more transparent oversight.3% free 100 80 @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @@ @ @ @ @ @ @@ @@ @ @ @ @ @ @ @ @ @@ @ @@ 60 40 Americas Average = 62. comp. Its overall score is 0. which has been instituting stronger rules and better. and business freedom. growth $2.) External Debt: $6. ann.1 billion Primarily coffee.

and greater oversight. fishing and hunting. TRADE FREEDOM — 69. which is generally accorded the same rights as domestic investment. Obtaining a business license and closing a business are difficult. averaging 8. In the most recent year. clarification of the role of the central bank. The non-salary cost of employing a worker can be low. Other taxes include a value-added tax (VAT) and a capital gains tax. and few capital transactions require approval. Foreign ownership of land near the coast or along borders is generally prohibited but may be allowed in some cases with government permission.5% Inflation in Honduras is relatively high. including consumption and transfer payments. and private education. operate. and high levels of corruption. MONETARY FREEDOM — 71.2 0 monetary freedom score to adjust for measures that distort domestic prices.9% Total government expenditures in Honduras. Government authorization is required for foreign investment in basic health services. Both the top income tax rate and the top corporate tax rate are 30 percent (a 25 percent corporate tax rate plus a 5 percent temporary social contribution tax).9 71. and the government received 10. coffee export fees. and consisted of nine domestic and two foreign insurance companies as of October 2004. 100 = most free. but dismissing a redundant employee is costly. but informal constraints can be significant. steel. an additional 20 percent is deducted from Honduras’s trade freedom score to account for these non-tariff barriers. subsidies.6 69. telecommunications.4 percent in 2004. and about a dozen other small financial institutions operating in 2005. is in 20-year government bonds.1 percent of GDP. FISCAL FREEDOM — 87. The collapse of several banks has led to stronger capital-adequacy rules. customs corruption. = world average BUSINESS FREEDOM — 56. Payments and transfers are not restricted. and services from state-owned utilities and reserves the right to impose price controls across other goods and services as needed. PROPERTY RIGHTS — 30% Protection of property is weak. making business disputes difficult to resolve. LABOR FREEDOM — 59. but compensation. exploration and exploitation of minerals. and obtaining government approval for investment activities commonly involves procedural red tape. FREEDOM FROM CORRUPTION — 26% Corruption is perceived as widespread. Entrepreneurship should be easier for maximum job creation.6% Starting a business takes an average of 44 days. pharmaceuticals. agriculture. Restrictions on contracting or increasing the number of work hours are rigid.3 percent. a weak judicial system. a deteriorating security environment. The government does not always publish regulations before they enter into force. and restrictive sanitary and phytosanitary rules. Foreign investors face few formal restrictions on accessing domestic credit. accounting for only 4 percent of financial sector assets. The banking sector has undergone consolidation through mergers and closures in recent years. and close a business is restricted by the national regulatory environment. Consequently. The lack of judicial security. Relatively high and unstable prices explain most of the monetary freedom score.8 82. In the most recent year. The investment climate is hampered by high levels of crime.8 percent of its total revenues from state-owned enterprises and government ownership of property. overall tax revenue as a percentage of GDP was 17. Honduras ranks 107th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. Both residents and non-residents may hold foreign exchange accounts. Expropriation of property is possible. forestry.HONDURAS’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 56. insurance and financial services. There are two small stock exchanges. some limitations on market access in the services sector. L L L L L L L L L L 50 100 INVESTMENT FREEDOM — 50% Honduras welcomes foreign investment.5 50 70 30 26 59. Consequently.5 percent between 2003 and 2005.8% Honduras has moderate tax rates. There were 16 private commercial banks (several with foreign ownership).2% The weighted average tariff rate in Honduras was 5. FREEDOM FROM GOVERNMENT — 82. air transport. Non-tariff barriers include differential import taxes. The overall freedom to start. The government regulates the price of petroleum products. compared to the world average of 48 days. The insurance sector is very small. and endemic corruption pose real risks. FINANCIAL FREEDOM — 70% The Honduran financial sector is developing.2 87. two state-owned banks. when awarded. are low. government spending equaled 24.2% The labor market operates under restrictive employment regulations that impede employment and productivity growth. an additional 10 percent is deducted from Honduras’s 204 2007 Index of Economic Freedom . electricity.

which makes it the world’s freest economy. H The economy is 89. The judiciary. Business regulation is simple. footwear. fuel 205 . and its overall score is well above the regional average. independent of politics and virtually free of corruption. although the government distorts the prices of several staples. It was a British colony for 130 years until the 1997 transfer of sovereignty to China.7 billion Official Development Assistance: Multilateral: None Bilateral: $7 million (3% from the U. although it remains a separate economic system.6 percentage points lower than last year.4 billion Primarily electrical machinery and appliances.S.9 million GDP (PPP): $212.) External Debt: $72. BACKGROUND: Hong Kong is part of the People’s Republic of China. consumer goods.3 percent free. Investment in Hong Kong is wide open. Hong Kong is ranked 1st out of 30 countries in the Asia–Pacific region.3% free 100 @ @ @ @ @ @ @ @ @ @ @ @ @ 80 @ @ @ @ @ @ @ Hong Kong scores exceptionally well in almost all areas of economic freedom.1 billion 8.6 20 0 1995 2007 QUICK FACTS Population: 6. partially reflecting new methodological detail. A major gateway to the Chinese economy. The island is also one of the world’s leading financial centers. 60 @ @ @@ @@ @@ @ @ @@ @ @ @ @ @ @ @ 40 Asia Average = 59. simple procedures for enterprises. textiles. food.org/index. printed material Imports: $299. capital goods.6% growth in 2004 4. apparel. has an exemplary ability to protect property rights. free entry of foreign capital and repatriation of earnings. Income and corporate tax rates are extremely low.0 billion (2005 estimate) Exports: $314. The vast bulk of Hong Kong’s economy is built on the service sector. according to our 2007 assessment. Its overall score is 1. precious stones. and the labor market is highly flexible.HONG KONG Rank: 1 Regional Rank: 1 of 30 ong Kong’s economy is 89. comp. Hong Kong maintains the rule of law. headed by a Chief Executive. Enforcing intellectual property rights is a problem. Governance of Hong Kong is run as a Special Administrative Region (SAR).4% FDI (net inflow): –$5. ann. with an extensive banking and services industry that is regulated non-intrusively and transparent. watches and clocks. and overall taxation is relatively small as a percentage of GDP.8% Inflation (CPI): –0. who took power after Tung Chee-hwa resigned in the wake of massive prodemocracy demonstrations. Inflation is low. and transparency. The current Chief Executive is Donald Tsang.1 World Average = 60.8% 5-yr. toys. Hong Kong could do slightly better in trade freedom.822 per capita Unemployment: 6. How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. with virtually no restrictions on foreign capital. growth $30. plastics. however.6 billion Primarily raw materials and semimanufactures. though the country’s zero percent average tariff rate is impressively open.

4 percent between 2003 and 2005. on income adjusted for deductions and allowances or at a flat rate of 16 percent on their gross income. which are treated the same as domestic institutions. Under a dual income tax system. Stable prices explain most of the monetary freedom score. PROPERTY RIGHTS — 90% Contracts are strongly protected. Non-tariff barriers include restrictive regulation of pharmaceuticals. or repatriation of profits. and close a business is protected by the national regulatory environment. LABOR FREEDOM — 93.6% The labor market operates under highly flexible employment regulations that enhance employment and productivity growth.9 percent of its total revenues from state-owned enterprises and government ownership of property. 100 = most free. FREEDOM FROM GOVERNMENT — 91. an additional 20 percent is deducted from Hong Kong’s trade freedom score to account for these non-tariff barriers. but dismissing a redundant employee can be relatively costly.3 91. The leases are valid up to 2047 for all land in the SAR. averaging 0. The stock exchange ranks ninth in the world in terms of capitalization. individuals are taxed either progressively. The non-salary cost of employing a worker is low. and closing a business is very easy. The labor code is strictly enforced but does not impede business activities.3 percent of GDP. tobacco.6 91. MONETARY FREEDOM — 91. FREEDOM FROM CORRUPTION — 83% Corruption is perceived as minimal.2 billion in private stocks. In the most recent year. and methyl alcohol—trade is essentially duty-free.3% Hong Kong’s tax rates are among the lowest in the world. There are no limits to foreign ownership and no screening or special approval procedures to set up a foreign firm. are low. FISCAL FREEDOM — 95. Hong Kong has a transparent legal system based on common law. The regulatory and legal environment is non-intrusive. = world average BUSINESS FREEDOM — 88.1% Inflation in Hong Kong is low. The government controls all land and grants renewable land leases through public auctions. With the exception of four categories of goods—liquors. TRADE FREEDOM — 80% Hong Kong’s weighted average tariff rate was zero percent in 2003. market access restrictions for legal services. between 2 percent and 19 percent. and it is uncertain what the government’s land policy will be after 2047 vis-à-vis China’s land policy. compared to the world average of 48 days. Business regulations are streamlined and applied uniformly.5 percent. government spending equaled 18. Regulations on expanding or contracting the number of working hours are very flexible. In April 1998. The top income tax rate is 17. The sound business environment allows entrepreneurship to flourish. The estate (inheritance) tax was abolished effective February 11. There are no controls or requirements on current transfers. The only exception is broadcasting. but it has since largely divested itself of all but $410 million of these holdings. focused on prudent minimum standards and transparency. Banks are overseen by the independent Hong Kong Monetary Authority. The overall freedom to start. and the government received 1. Obtaining a business license is relatively simple. purchase of real estate. There are no restrictions on foreign banks. These protections do not seem to be in danger.6 0 rents.3% Starting a business takes an average of 11 days.6% Total government expenditures in Hong Kong. In the most recent year.HONG KONG’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 88. and its constitution strongly supports private property and freedom of exchange. Consequently. Hong Kong ranks 15th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. Consequently.3 80 95. Credit is allocated on market terms to all investors. operate. hydrocarbon oil. electricity. the government intervened in the stock market by purchasing $15. FINANCIAL FREEDOM — 90% Hong Kong is a global financial center with an innovative and efficient financial system. access to foreign exchange. and issues involving the enforcement and protection of intellectual property rights.7 percent. where foreign entities may own no more than 49 percent of the local stations. 2006. depending on which liability is lower.1 90 90 90 83 93. L L L L L L L L L L 50 100 INVESTMENT FREEDOM — 90% Foreign investment is strongly encouraged. The Hong Kong dollar is freely convertible. overall tax revenue as a percentage of GDP was 11. The government regulates the price of public transport. an additional 5 percent is deducted from Hong Kong’s monetary freedom score to adjust for measures that distort domestic prices. and some residential 206 2007 Index of Economic Freedom . including consumption and transfer payments.

Both foreign ownership of and foreign investment in Hungarian firms are widespread. fiscal freedom. The rule of law is strong. 207 . comprising the Hungarian Socialist Party and the liberal Alliance of Free Democrats. Hungary is ranked 25th out of 41 countries in the European region. The top income tax rate is fairly high. Its overall score is 0. partially reflecting new methodological detail. and labor freedom. food products. Hungary’s freedom from government is weak.2 billion Exports: $66. food products.9 percentage point lower than last year. Hungary needs to reduce government spending and further reform its economy in order to meet the 2010 target date for accession to the euro zone.8% FDI (net inflow): $3.6% growth in 2004 4. Total government spending is high. fuels and electricity Imports: $69. but corporate taxes are low.1% Inflation (CPI): 6. as regulations are not applied consistently. a professional judiciary protects property rights. Business licensing is also a problem. Investment in Hungary is easy. but Hungary’s monetary score is hurt by the EU’s agricultural subsidies. monetary freedom.4 billion Primarily machinery and equipment. and its overall score is slightly lower than the regional average.4 billion Primarily machinery and equipment. Foreign capital enjoys virtually the same protections and privileges as domestic capital. property rights. ann.9 billion 4.S. raw materials How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. and the level of corruption is low. H The economy is 66. although it is subject to government licensing in securitysensitive areas. according to our 2007 assessment. and many state-owned enterprises have not been privatized. business freedom. following nearly 50 years of Communist rule.org/index.1 million GDP (PPP): $169.814 per capita Unemployment: 6. growth $16. BACKGROUND: Hungary held its first multi-party elections in 1990. fuels and electricity.2 percent free.HUNGARY Rank: 44 Regional Rank: 25 of 41 ungary’s economy is 66.2% free 100 80 @ @ @ @@ @ @@ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @@ @ @@ @ @ @ @@ @ @ @ Hungary enjoys strong trade freedom. which makes it the world’s 44th freest economy. investment freedom.6 billion Official Development Assistance: Multilateral: $241 million Bilateral: $63 million (2% from the U.6 20 0 1995 2007 QUICK FACTS Population: 10.3% 5-yr.5 World Average = 60.) External Debt: $63. comp. other manufactures. 60 40 Europe Average = 67. raw materials. Inflation is low. prevailed in the April 2006 general election. other manufactures. and has succeeded in transforming its centrally planned economy into a market economy. The governing coalition.

a property tax. and foreign investors participate freely. Hungary ranks 40th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. particularly financial regulation. PROPERTY RIGHTS — 70% The constitution provides for an independent judiciary.2 76. averaging 4. There are no restrictions or controls on payments for invisible transactions. Both residents and non-residents may hold foreign exchange accounts. and broadcasting. There were 28 insurance companies and 34 insurance cooperatives in 2004. telecommunications.8 76. The banking industry is competitive. and other market access restrictions. L L L L L 100 100 = most free. The state also has a very small stake and a “golden share” in the largest domestic bank. L L L L L 50 INVESTMENT FREEDOM — 70% Foreign companies account for a large share of manufacturing.5 percent of bank assets. In the most recent year. an additional 20 percent is deducted from Hungary’s trade freedom score. an additional 10 percent is deducted from Hungary’s monetary freedom score to account for these policies. government spending equaled 49. or repatriation of profits and no restrictions on issues or sales of capital market instruments. and it often takes more than a year to obtain a final ruling on a contract dispute. airlines. Regulations are not always applied transparently or evenly. regulatory and licensing restrictions. Consequently. The law provides for equal treatment of foreign and domestic capital. FREEDOM FROM GOVERNMENT — 41. Foreign investors account for over 80 percent of banking capital. OTP Bank.1 0 telecommunications services. TRADE FREEDOM — 76. are extremely high. The overall freedom to start. including consumption and transfer payments. current transfers. EU institutions have easier access than others. but closing a business is relatively easy. although there are some reporting requirements. Although most large financial institutions are subsidiaries of foreign financial groups.2% Starting a business takes an average of 38 days. and a community tax. compared to the world average of 48 days. permitting greater foreign participation. Capital markets are well developed.2 41. As a participant in the EU’s Common Agricultural Policy. It also regulates prices for energy.1% The labor market operates under relatively flexible employment regulations that could be improved to enhance employment and productivity growth. The law still restricts financial institutions from offering a full range of services. the government subsidizes agricultural production.7 percent.4 percent between 2003 and 2005. LABOR FREEDOM — 66. Relatively unstable prices explain most of the monetary freedom score. The unemployment insurance system offers benefits for up to 270 calendar days to the involuntarily unemployed.4 percent of GDP. and the top three insurers were foreign companies. = world average BUSINESS FREEDOM — 71.7 percent in 2005.7% Inflation in Hungary is moderate. and energy activity. and dismissing a redundant employee is relatively costly.9 percent of its total revenues from state-owned enterprises and government ownership of property.7 70 60 70 50 66. The sale of remaining state-owned enterprises has been accelerated.2% Hungary has a high income tax rate but a low corporate tax rate. including agricultural and manufacturing subsidies. The top income tax rate is 38 percent. and the government respects this provision in practice. and close a business is relatively well protected by the national regulatory environment. MONETARY FREEDOM — 76. The government also implements restrictive biotechnology regulations for food and feed products.HUNGARY’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 71. operate. The government allows 100 percent foreign ownership in almost all sectors. distorting the prices of agricultural products. and the government received 3.8% Total government expenditures in Hungary. some types of land. with the exception of some defense-related industries. Hungary undertook significant reform of its financial system. Two major banks and the FHB Land Credit and Mortgage Bank are partially state-owned and together account for over 7. Other taxes include a valueadded tax (VAT).6 79. and subsidized pharmaceutical products. Obtaining a business license is difficult. FISCAL FREEDOM — 79. The common EU weighted average tariff rate was 1. and the top corporate tax rate is 16 percent. In the most recent year. 208 2007 Index of Economic Freedom . among others. The court system is slow and severely overburdened. The threat of expropriation is low. Consequently. The non-salary cost of employing a worker can be high. Various nontariff barriers are reflected in EU and Hungarian government policy. FINANCIAL FREEDOM — 60% To prepare for accession to the European Union. with an average worker receiving about 65 percent of his or her salary in benefits. Entrepreneurship should be easier for maximum job creation. overall tax revenue as a percentage of GDP was 37.6% Hungary’s trade policy is the same as those of other members of the European Union. FREEDOM FROM CORRUPTION — 50% Corruption is perceived as present.

051 per capita Unemployment: 3. independent of politics and free of corruption. and foreign investment is permitted without government approval.1 billion (2002) Exports: $4.2% growth in 2004 3.5 World Average = 60.org/index. How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. Iceland is relatively weaker in terms of labor freedom.3 billion Primarily machinery and equipment. Virtually all commercial operations are simple and transparent. has an exemplary ability to protect property rights. The service sector employs more than 60 percent of the working population. BACKGROUND: The Republic of Iceland is a North Atlantic island with a centuries-old democratic tradition. petroleum products. according to our 2007 assessment. property rights.1 percent free. fiscal freedom. Recent market liberalization and a considerable reduction in government ownership have strengthened entrepreneurial dynamism and increased productivity in many sectors of the economy. which makes it the world’s 15th freest economy. Total government spending equals almost 50 percent of GDP. diatomite Imports: $5. Although the marine sector accounts for the majority of exports. and its overall score is higher than the regional average. and monetary freedom.8% FDI (net inflow): –$2. and business regulation is efficient. it is one of the world’s wealthiest economies. ann. trade freedom. its share of the economy has declined over the years. although capital is subject to restrictions in some areas of the economy. The judiciary.3 million GDP (PPP): $9. textiles 209 . and especially freedom from government. Iceland is ranked 8th out of 41 countries in the European region. Inflation is fairly low. investment freedom. Its overall score is 0.5 billion Primarily fish.6 percentage point lower than last year. I The economy is 77. fish products. Iceland’s financial sector is highly modern. comp. business freedom.ICELAND Rank: 15 Regional Rank: 8 of 41 celand’s economy is 77. financial freedom. Iceland has never applied for EU membership. A point of pride is that Iceland is rated as the world’s least corrupt economy. investment freedom.7 billion 8. animal products.1% free 100 80 @ @ @ @ @@ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ Iceland enjoys high levels of freedom from corruption. partially reflecting new methodological detail. aluminum. The average tariff rate is low (though non-tariff barriers such as phytosanitary and agricultural restrictions are extensive). ferrosilicon. In per capita terms.3 billion Official Development Assistance: Multilateral: None Bilateral: None External Debt: $3. which is unpopular among the country’s citizens.1% Inflation (CPI): 2. food. growth $33.6 20 0 1995 2007 QUICK FACTS Population: 0. 60 40 Europe Average = 67.6% 5-yr.

import bans. are high.9% Inflation in Iceland is moderate. the government has made progress in streamlining its complex and time-consuming regulatory environment. import and export restrictions. The constitution provides for an independent judiciary. Consequently. L L L L L L L L L L 50 100 INVESTMENT FREEDOM — 60% Iceland generally welcomes foreign investment. Regulations on increasing or contracting the number of work hours are rigid. overall tax revenue as a percentage of GDP was 41. which enjoys public guarantees from the government and is exempt from tax liability according to the European Banking Federation. and closing a business is very easy.3 82. In the most recent year. Residents and non-residents may own foreign exchange accounts. LABOR FREEDOM — 69.8 percent. Since joining the European Economic Area. In recent years. and dismissing a redundant employee is not difficult. and the top corporate tax rate is 18 percent. and the government received 4. allowing Icelandic financial institutions to operate on a cross-border basis in the EEA and vice versa. including consumption and transfer payments.3% Total government expenditures in Iceland. There are no controls or requirements on payments or current transfers. or repatriation of profits. although the government maintains restrictions in some key areas.5 percent of GDP. compared to the world average of 48 days. Foreign ownership in the fishing industry. averaging 3.1 74 82. government spending equaled 45. import taxes. trials are public and conducted fairly. subject to reporting requirements. Milk is subject to production-linked direct payments. The state-owned Housing Financing Fund (HFF). The HFF holds approximately 80 percent of the individual home loan market and about 50 percent of the individual credit loan market.2 percent of its total revenues from state-owned enterprises and government ownership of property. is limited to 25 percent. burdensome regulations. and sheep farmers receive direct payments based on 210 2007 Index of Economic Freedom . now faces competition from Icelandic banks in residential housing mortgages. The government subsidizes agricultural production.9 percent. With just a few exceptions.9% The labor market operates under relatively flexible employment regulations that could be improved to enhance employment and productivity growth. with no official intimidation. production quotas.9 0 support targets and quality-dependent payments. and individuals must live in Iceland to purchase real estate. Strict phytosanitary regulations. FREEDOM FROM GOVERNMENT — 50. Iceland ranks first out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. Obtaining a business license is simple. an additional 20 percent is deducted from Iceland’s trade freedom score to account for these non-tariff barriers. The stock market has expanded rapidly and is part of a regional integrated network of exchanges in Nordic and some Baltic countries. FINANCIAL FREEDOM — 70% Iceland’s financial sector is modern and provides a full range of financial services. The non-salary cost of employing a worker is moderate. The business environment has allowed entrepreneurship to flourish. MONETARY FREEDOM — 82. and close a business is strongly protected by the national regulatory environment. Relatively unstable prices explain most of the monetary freedom score. an additional 5 percent is deducted from Iceland’s monetary freedom score to account for these policies. and a government agricultural policy that includes a price equalization mechanism to support agricultural exports add to the cost of trade. distorting the prices of agriculture products. prohibitively high agriculture tariffs. TRADE FREEDOM — 74% Iceland’s weighted average tariff rate was 3 percent in 2003. The top income tax rate is 23. which constitutes a major portion of the economy. 100 = most free. The government sold its stakes in two partially state-owned banks in 2003 and no longer has a presence in the commercial banking sector.4% Iceland has a moderate income tax rate and a low corporate tax rate. = world average BUSINESS FREEDOM — 94.4 50. The overall freedom to start. Iceland has liberalized and deregulated its financial markets. PROPERTY RIGHTS — 90% Private property is well protected in Iceland.6 percent between 2003 and 2005. Consequently.ICELAND’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 94.9 60 70 90 97 69. There were 13 domestic insurance companies and a number of foreign insurance companies operating in June 2005. access to foreign exchange. and administered prices. and the government generally respects this provision in practice. In the most recent year. FISCAL FREEDOM — 82. Other taxes include a value-added tax (VAT) and a net wealth tax. FREEDOM FROM CORRUPTION — 97% Corruption is perceived as almost nonexistent. operate.1% Starting a business takes an average of five days.

211 .1 billion GDP (PPP): $3.S. engineering goods. comp. Though the country has a large financial sector.INDIA Rank: 104 Regional Rank: 19 of 30 ndia’s economy is 55.) External Debt: $122. it has been a nation only since the end of British colonial rule in 1947. freedom from government. growth $3. but a tradition of protectionism and a large public sector are heavy burdens.8% FDI (net inflow): $3.1 World Average = 60. India’s fast-growing population of 1. but the majority of Indians still work in agriculture. Its overall score is 3.9 billion Primarily crude oil. chemicals How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. mostly due to residual benefits earned from past reforms.8 billion (9% from the U.org/index. ann.1% (2004 estimate) Inflation (CPI): 3.139 per capita Unemployment: 9. which makes it the world’s 104th freest economy. and 2006 saw strong economic growth. and overall tax revenue is not excessive as a percentage of GDP. machinery. India could improve in several areas. Though one of the oldest civilizations in existence. The top individual and corporate income tax rates are moderate. Government expenditure is relatively low as well. financial freedom.3 percentage points higher than last year.3 billion Bilateral: $1. but government price controls hinder market forces.1% growth in 2004 5. services and manufacturing have driven economic gains.6% free 100 80 @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ India enjoys strong fiscal freedom. and the judicial system is erratic and clogged by a significant backlog of cases. I The economy is 55. gems and jewelry.6 20 0 1995 2007 QUICK FACTS Population: 1. partially reflecting new methodological detail. 60 @ @ @ @@ @ @ @@ @@ @ @ @@ @ @ @ @ @ @ @ 40 Asia Average = 59. gems.1 billion Official Development Assistance: Multilateral: $1. investment freedom. and the government imposes severe nontariff barriers.6 percent free. according to our 2007 assessment.7 billion Exports: $82. chemicals. Inflation is fairly low.1 billion people offers a potential human capital advantage. fertilizer.4 trillion 8. Historically. although a significant amount of total tax revenue comes from stateowned businesses. and monetary freedom. the private sector is vibrant and diversified. BACKGROUND: India is the world’s most populous democracy. India is ranked 19th out of 30 countries in the Asia–Pacific region. including business freedom. leather manufactures Imports: $93. Foreign investment is overly regulated. and freedom from corruption.8% 5-yr.7 billion Primarily textile goods. the government interferes extensively with foreign capital. and its overall score is lower than the regional average. The average tariff rate is high. Nevertheless. trade freedom.

discriminatory sanitary and phytosanitary measures. Foreign investors face restrictions on ownership of Indian banks and insurance companies. compared to the world average of 48 days. MONETARY FREEDOM — 77. many national.6% Starting a business takes an average of 35 days. Rules established in 2005 maintain restrictions on most existing joint ventures but allow new ones to negotiate their own terms on a commercial basis. Non-tariff barriers include excessive bureaucracy. some petroleum products and certain types of coal. Banks are required to extend a specified percent of their loans to “priority” borrowers. Consequently. FREEDOM FROM CORRUPTION — 29% Corruption is perceived as widespread. L L L L L 100 100 = most free. Capital markets are widespread.8 89 77. The government subsidizes agricultural. overall tax revenue as a percentage of GDP was 10. which are subject to significant restrictions. and a negative import list that bans or restricts many goods. In addition. TRADE FREEDOM — 51. Because of large backlogs.2 percent.1 0 commodities. FISCAL FREEDOM — 84. Highly complex rules and laws limit FDI and. PROPERTY RIGHTS — 50% Protection of property rights is applied unevenly in India.8% India’s tax rates are moderate.2% Inflation in India is moderate. and local development banks. but dismissing a redundant employee is costly. government spending equaled 16. gas. The rigid labor code impedes job creation and keeps the majority of the work force in the informal economy.1 percent between 2003 and 2005. electricity. India’s 27 stateowned banks control about 70 percent of banking loans and deposits. export subsidies. the five state-owned insurers dominate the market.3 percent of its total revenues from state-owned enterprises and government ownership of property—an extraordinarily high percentage relative to other countries.INDIA’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 49. All businesses must contend with extensive federal and state regulation as well as an infamously slow bureaucracy. LABOR FREEDOM — 55. and retail) on “essential” 212 2007 Index of Economic Freedom . = world average BUSINESS FREEDOM — 49. Protection of property for local investors. wholesale. restrictive licensing requirements. in some sectors. and kerosene production and (under the Essential Commodities Act of 1955) applies price controls at three levels (factory. India ranks 88th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. FREEDOM FROM GOVERNMENT — 89% Total government expenditures in India. state. L L L L L 50 INVESTMENT FREEDOM — 40% India controls foreign investment with limits on equity and voting rights and mandatory government approvals. Both the top income tax rate and the top corporate tax rate are 33 percent (a top rate of 30 percent plus a 10 percent surcharge).3 percent of GDP. financial institutions.2 40 30 50 29 55. While the insurance sector has been partially liberalized. Capital transactions and some credit operations are subject to certain restrictions and requirements. and pharmaceuticals. and a tax on insurance contracts. an additional 20 percent is deducted from India’s trade freedom score to account for these extensive non-tariff barriers. The overall freedom to start. Non-residents may hold conditional foreign exchange and domestic currency accounts. The non-salary cost of employing a worker is moderate. either domestically or abroad. a property tax. the largest in South Asia.2 84. In the most recent year. including consumption and transfer payments. In the most recent year. onerous standards and certifications on many goods. FINANCIAL FREEDOM — 30% India’s financial system. and the government received 14. it takes several years for the courts to reach decisions. an additional 10 percent is deducted from India’s monetary freedom score to account for these policies. even prohibit it. Foreign corporations often resort to international arbitration to bypass the court system. operate. Consequently. particularly the smallest ones. is characterized by heavy government involvement. averaging 4. problematic enforcement of intellectual property rights. and even venture capital funds.6 51. are low. the government owns nearly all of approximately 600 rural and cooperative banks. but foreign participation faces some restrictions. Obtaining a business license and closing a business can be very difficult. is weak.2% India’s weighted average tariff rate was 14. Relatively unstable prices explain most of the monetary freedom score.1% The labor market operates under restrictive employment regulations that hinder employment and productivity growth.4 percent in 2005. import taxes. which is estimated to employ about 90 percent of workers. Central bank approval is required for residents to open foreign currency accounts. Other taxes include a dividend tax. and close a business is significantly restricted by the national regulatory environment.

S. and regulations are onerous.3 billion (13% from the U. financial freedom.6 20 0 1995 2007 QUICK FACTS Population: 217. but corporate tax rates are moderate.org/index. Because corruption is rampant. straddles strategically important shipping lanes and has the largest economy in Southeast Asia. but employing and firing workers can be costly. The top income tax rate is high. In his second term.1% growth in 2004 4.8 billion Primarily oil and gas. impartial adjudication of cases is not guaranteed. food How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. property rights. electrical appliances. and freedom from corruption. and state-owned businesses do not account for a significant portion of total revenues. Currently. the world’s largest Muslim country and third largest democracy. but the agriculture sector is the dominant employer.1% free 100 80 @ @ @ @ @@ @ @@ @@ @ @ @ @ @ @ @@ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ Indonesia scores well in fiscal freedom. which makes it the world’s 110th freest economy.2% FDI (net inflow): $915.2 billion 5. 213 . the government is hard-pressed to deliver on its campaign promises to fight corruption and provide jobs. and judicial enforcement is both erratic and non-transparent in its treatment of foreigners.1 percent free. BACKGROUND: Indonesia. I The economy is 55.6 million GDP (PPP): $785. The economy is helped by development in industry and services.) External Debt: $140. investment freedom. President Susilo Bambang Yudhoyono has successfully negotiated a peace deal in Aceh and substantial reductions in fuel subsidies.8 million Official Development Assistance: Multilateral: $262 million Bilateral: $1. rubber Imports: $79. plywood. fuels.7% 5-yr.609 per capita Unemployment: 10. Starting a business takes twice as long as the world average. Foreign investment is restricted. Government expenditures are fairly low. growth $3. comp. The labor market operates under somewhat flexible conditions.INDONESIA Rank: 110 Regional Rank: 21 of 30 ndonesia’s economy is 55. and labor freedom. according to our 2007 assessment.1 World Average = 60. Indonesia is ranked 21st out of 30 countries in the Asia–Pacific region. partially reflecting new methodological detail.9% (2004 estimate) Inflation (CPI): 6. ann. Indonesia is weak in business freedom. and its overall score is lower than the regional average. freedom from government. Its overall score is 1 percentage point higher than last year. textiles. chemicals.7 billion Exports: $89. 60 @ @ @ @ @ 40 Asia Average = 59.1 billion Primarily machinery and equipment.

In the most recent year. Relatively high and unstable prices explain most of the monetary freedom score. toll-road tariffs. housing. are low. and electric power generation and transmission. and two small stock exchanges were operating in 2005. It is also difficult to get the courts to enforce international arbitration awards. hospital services. including oil and gas. Entrepreneurship should be easier for maximum job creation.7% Starting a business takes an average of 97 days. TRADE FREEDOM — 69% Indonesia’s weighted average tariff rate was 5.1 percent between 2003 and 2005. air transport. trains. Other taxes include a value-added tax (VAT) and a tax on interest. Consequent- LABOR FREEDOM — 67.7% Total government expenditures in Indonesia.5% The labor market operates under relatively flexible employment regulations that could be improved to enhance employment and productivity growth. liquefied petroleum gas. operate. quotas. rice. State-owned enterprises still dominate many sectors. an additional 10 percent is deducted from Indonesia’s monetary freedom score to account for these policies. and regulations are somewhat burdensome. PROPERTY RIGHTS — 30% Court rulings can be arbitrary and inconsistent. Indonesia ranks 137th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. At the end of 2005. Non-tariff barriers include import and export restrictions. Subject to restrictions. = world average BUSINESS FREEDOM — 45. and judicial corruption is substantial. and government-controlled banks accounted for 38 percent. 214 2007 Index of Economic Freedom . L L L L L L L L L L 50 100 INVESTMENT FREEDOM — 30% Rampant corruption. retail distribution. All banks taken over by the Indonesian Bank Restructuring Agency (IBRA) in the wake of the crisis have been privatized. Most capital transactions are restricted. the 41 foreignowned or foreign-controlled banks accounted for over 45 percent of banking assets. cigarettes.2 percent. 100 = most free. cement. are administered. and weak enforcement of intellectual property rights. Several insurers and foreign insurers rank among the top 10 companies. including consumption and transfer payments. significant changes have not been made. The overall freedom to start. Foreign investors are permitted to invest in Indonesian banks. FREEDOM FROM GOVERNMENT — 90. Implementation of a tax reform package that includes reduction of the corporate tax rate has been delayed. and health care are subsidized. compared to the world average of 48 days. and capital markets. FREEDOM FROM CORRUPTION — 22% Corruption is perceived as widespread. salt. In 2000. Although the government has vowed to improve labor market flexibility in recent years.5 0 ly. Fuel. ignoring the facts of the case and the contracts between the parties. and dismissing a redundant employee is relatively costly. FISCAL FREEDOM — 85% Indonesia has a high income tax rate and a moderate corporate tax rate. the government closed 11 business sectors to foreign and domestic investment and closed eight others to foreign investment. overall tax revenue as a percentage of GDP was 11.7 70. and closing a business is very difficult. FINANCIAL FREEDOM — 40% After the Asian financial crisis of 1997–1998. the number of banks fell from 238 in 1997 to 131 at the end of 2005.INDONESIA’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 45. import bans. city transport. nontransparent regulations. Provincial governments also own and operate development banks. residents and non-residents may hold foreign exchange accounts. and prices for goods and services. Despite recent deregulation. bureaucracy and lack of transparency are persistent problems. and close a business is significantly restricted by the national regulatory environment. Businesses find the judicial process unpredictable and the actions of local officials arbitrary. including gasoline. government spending equaled 19.7 69 85 90. Judges have been known to rule against foreigners in commercial disputes.1 percent of GDP. Supervision of financial institutions remains insufficient. Foreign investors complain that corruption makes it very difficult to negotiate and enforce contracts and leads to unequal treatment of foreign investors.5 percent in 2004. Consequently. electricity. Several investments require domestic partners. and taxation and labor issues are among the greatest obstacles to foreign investment. MONETARY FREEDOM — 70. telephone charges.3 percent of its total revenues from state-owned enterprises and government ownership of property. and the government received 2. customs corruption. insurance companies. The non-salary cost of employing a worker can be high. The top income tax rate is 35 percent. and postage. Capital markets are developing.9 30 40 30 22 67. lack of security. potable piped water. Obtaining a business license is difficult.9% Inflation is relatively high. but the state remains a considerable presence in the banking sector. and the top corporate tax rate is 30 percent. Non-residents may not purchase real estate but may purchase the right to use real estate. State-owned banks are estimated to have a non-performing loan ratio of about 15 percent. an additional 20 percent is deducted from Indonesia’s trade freedom score. averaging 9. In the most recent year.

the Iran–Iraq war. Corruption is rampant.2 billion (2004 estimate) Primarily petroleum. is significant. Iran is ranked 16th out of 17 countries in the Middle East/North Africa region.1 million Official Development Assistance: Multilateral: $35 million Bilateral: $173 million (3% from the U.9 billion (2004 estimate) Primarily industrial raw materials and intermediate goods. comp. growth $7.2 World Average = 60. and a bloated and inefficient public sector.8% FDI (net inflow): $614. capital goods. according to our 2007 assessment. financial freedom. ann. BACKGROUND: Iran’s economy. chemical and petrochemical products.org/index.1% free 100 80 @ @ Mideast/North Africa Average = 57. Its overall score is 0.2 percentage point lower than last year. which makes it the world’s 150th freest economy. High tariff rates and non-tariff barriers impede trade and foreign investment alike. and the top corporate tax is moderate at 25 percent. and the fair adjudication of property rights in a court of law cannot be guaranteed. food and other consumer goods. High world oil prices have raised export revenues and helped to service Iran’s large foreign debt. military supplies How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. Overall tax revenue as a percentage of GDP.2% Inflation (CPI): 14. was crippled by the 1979 Islamic revolution.6 @@ @ @ @@ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ Iran’s economy scores well in only one of the 10 factors measured: fiscal freedom.) External Debt: $13. inflation. Iran’s economy is unfree in many ways. property rights. and its overall score is extremely low—almost one-third below the regional average.6% growth in 2004 5. fruits and nuts. and greater state control. partially reflecting new methodological detail. trade freedom. and attendant economic mismanagement. Business licensing and closing are regulated heavily by an intrusive and highly inefficient bureaucracy. technical services.S. instead.525 per capita Unemployment: 11. expensive subsidies. investment freedom. once one of the most advanced in the Middle East. The June 2005 presidential election elevated Mahmoud Ahmadinejad to power and halted tentative efforts to reform the state-dominated economy. corruption.7% 5-yr. Ahmadinejad has promised the poor a greater share of Iran’s oil wealth.6 billion Exports: $18. carpets Imports: $14. Business freedom. I The economy is 43. and freedom from corruption are all weak. however. but the economy remains burdened by high unemployment.1 percent free. The top income tax rate is high.2 billion 5. 215 . greater subsidies. 60 40 @ @ @ @ @ @ @ @ @ 20 0 1995 2007 QUICK FACTS Population: 67 million GDP (PPP): $504.IRAN Rank: 150 Regional Rank: 16 of 17 ran’s economy is 43.

Six small private banks have been established recently. Privatization has proceeded slowly. PROPERTY RIGHTS — 10% Resort to Iranian courts is often counterproductive and rarely leads to a fast resolution of disputes. FREEDOM FROM GOVERNMENT — 59.8% Iran has a high income tax rate and a moderate corporate tax rate. The top income tax rate is 35 percent. Written agreements offer very little protection for the contracting party. It also provides economic subsidies and influences prices through the regulation of Iran’s many state-owned enterprises.9 50. four state-owned specialized banks. burdensome customs procedures.2% The labor market operates under restrictive employment regulations that hinder employment and productivity growth. All insurance companies were nationalized during the revolution. Supervision of the financial sector is weak. All banks were nationalized following the 1979 revolution.4% Iran’s weighted average tariff rate was 14.8% Total government expenditures in Iran. or approval requirements. Iran’s laws require that the banking sector be run according to Islamic law. averaging 14 percent between 2003 and 2005. and capital transactions are subject to limitations. including petroleum products. LABOR FREEDOM — 61.8 59. The overall freedom to start. and closing a business is difficult. are moderate. There are six state-owned commercial banks. 216 2007 Index of Economic Freedom . Iran’s constitution forbids foreigners to own any concessions. The government allows the sale of 65 percent of the shares of state-owned enterprises.4 percent of GDP. Entrepreneurship should be easier for maximum job creation. an additional 15 percent is deducted from Iran’s monetary freedom score to adjust for measures that distort domestic prices. Relatively unstable prices explain most of the monetary freedom score. Consequently. In the most recent year.IRAN’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 54. L L L L L L L L L L 50 100 100 = most free. Iran has a small stock exchange. FREEDOM FROM CORRUPTION — 29% Corruption is perceived as widespread. and regulations on private banks are very restrictive. The government directs credit allocation. Firing a worker requires approval of the Islamic Labor Council or the Labor Discretionary Board. Bureaucratic hurdles and slowness are persistent problems. FISCAL FREEDOM — 84.8 percent in 2004.9% Starting a business takes an average of 47 days. including consumption and transfer payments. and close a business is restricted by the national regulatory environment. FINANCIAL FREEDOM — 10% Iran’s financial sector is subject to very heavy government influence.2 0 INVESTMENT FREEDOM — 10% Foreign investment is restricted in banking. There were also five small private domestic companies and one foreign insurance company in 2005. and dismissing a redundant employee is costly. = world average BUSINESS FREEDOM — 54. government spending equaled 31. transfers. overall tax revenue as a percentage of GDP was 20. Iran ranks 88th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. In the most recent year. and the government received 51. Foreign banks are legally permitted to operate in free trade zones. Most payments. Regulations on increasing or contracting the number of work hours are very inflexible.3% Inflation in Iran is high. which prohibits interest payments. Finding an influential local business partner who also enjoys substantial political patronage is the more effective way to protect contracts.4 84. Other taxes include a tax on check transactions and a tax of property transfers. Obtaining a business license can be very difficult. The non-salary cost of employing a worker is high. The government controls the prices of goods. electricity. and the top corporate tax rate is 25 percent. and wheat for the production of bread. TRADE FREEDOM — 50. The parliament has the power to veto projects in which foreign investors have a majority stake and has blocked two proposed investments.3 10 10 10 29 61. Most foreign firms have bad experiences when disputing a contract. or participate in production-sharing agreements in the oil and gas sector. The government imposes restrictive sanitary and phytosanitary regulations. credit operations. operate projects. MONETARY FREEDOM — 61.8 61. State banks account for 98 percent of banking assets. an additional 20 percent is deducted from Iran’s trade freedom score to account for these non-tariff barriers.9 percent. except for defense and security-related industries and the National Iranian Oil Company. Consequently. water.5 percent of its total revenues from state-owned enterprises and government ownership of property. and a state-owned postal bank. and border control. quantitative limits. telecommunications. transport. compared to the world average of 48 days. and import bans. operate. and the sector remains dominated by five state-owned companies.

the country is still unstable and faces continuing violence among different ethnic and religious factions. and years of neglect and postponed maintenance. The economy cannot be graded 100 80 @ @ Mideast/North Africa Average = 57. live animals How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage.S. crude materials excluding fuels. is hampered by continued insurgency and instability. BACKGROUND: Iraq gained its independence from Britain in 1932 and was a constitutional monarchy until a 1958 military coup led to a series of dictatorships.org/index. but these reforms and institutions cannot be fully effective as long as they have to depend on a foundation of weak physical security and persistent corruption. Iraq’s oil industry provides more than 90 percent of hard-currency earnings but has been hurt by pipeline sabotage.9 billion Primarily crude oil. Iraq was last graded in 2002. electricity outages. Saddam Hussein’s regime was ousted in 2003.8 million (2006 estimate) GDP (PPP): $94.IRAQ Rank: Not ranked Regional Rank: Not ranked T he economic freedom of Iraq cannot be scored in our 2007 assessment because sufficient reliable data for the country are not available. when it received a score of 0 percent.7% FDI (net inflow): $300 million (gross) Official Development Assistance: Multilateral: $151 million Bilateral: $4.) External Debt: $102. new investment laws. though helped by high oil prices and economic aid from the United States and other foreign donors.5 billion (67% from the U. Imports: $21.400 per capita (2005 estimate) Unemployment: 25%–30% (2005 estimate) Inflation (CPI): 31. manufactures 217 . However.3 billion Primarily food. food.1 billion (2005 estimate) n/a n/a $3. medicine. and a significantly liberalized and modernized banking system. simple and low tariffs.6 @@ @ @ @@ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ 60 40 20 @ @ @ @ @ @ @ 0 1995 2007 QUICK FACTS Population: 26. and an elected government led by Prime Minister Nuri al-Maliki took office in May 2006. In the years since the invasion by U. The Iraqi economy should benefit from many excellent reforms and institutions that have been put in place since 2003.S. the Iraq economy has slowly recovered.2 billion Exports: $16.2 World Average = 60. military forces in 2003. including tax policies. Economic recovery.

There is a flat sales tax of 10 percent. Most jobs in the private sector are informal. Workers must pay 5 percent of their salary as a mandatory contribution to the social security system. and securities were fully liberalized in March 2004. As it implements steps to create a social security safety net. Both individual and corporate income tax rates are capped at 15 percent. price subsidies by some 13 percent as it makes progress in restoring overall stability. Despite some progress in establishing an investment-friendly business environment. Such unstable prices are harmful to savings and therefore to investment. Under this legislation. specifically. The changes have aimed at liberalizing the investment and business environment in order to enhance job creation and economic growth. The central bank is now independent.S. LABOR FREEDOM — NOT GRADED Iraq’s formal labor market is not yet fully developed. It is planned that these banks will be merged with the two state-owned commercial banks and sold. Iraqi banks have been the most actively traded shares. The new stock exchange is small. The aftermath of the war resulted in high insecurity.BUSINESS FREEDOM — NOT GRADED Iraq’s old commercial code has been significantly amended in recent years. averaging 33 percent between 2003 and 2005. industrial. the two largest state-owned banks— Rafidain and Rasheed—accounted for 85 percent of banking sector assets. there were four specialized state-owned banks serving the agricultural. private banks in 2004. MONETARY FREEDOM — NOT GRADED Inflation in Iraq is high. Three foreign banks have been granted licenses. and social sectors. Department of Commerce. but that remains a daunting task. TRADE FREEDOM — NOT GRADED Iraq is in the process of rebuilding its economy. It is estimated that government spending equals about 90 percent of GDP. discouraging any kind of investment. FREEDOM FROM CORRUPTION — NOT GRADED FREEDOM FROM GOVERNMENT — NOT GRADED Total government expenditures in Iraq. Iraq continues to face substantial difficulties in attracting investment. Data on overall tax revenue are not available. According to the U. INVESTMENT FREEDOM — NOT GRADED The Foreign Investment Law of 2003 allows foreign companies to own up to 100 percent of Iraqi companies. largely as a result of the security situation. Although there were 17 218 2007 Index of Economic Freedom . FINANCIAL FREEDOM — NOT GRADED The Coalition Provisional Authority and the new Iraqi government have introduced many changes to Iraq’s financial system. and looting. foreign companies are treated the same as Iraqi companies.S. The absence of an enforceable legal system means that foreigners are further disadvantaged in terms of dispute resolution. PROPERTY RIGHTS — NOT GRADED There is no protection of property in Iraq. deposits. and interest rates on loans. significant problems remain to be addressed as Iraq tries to deal with challenges to its security and stability. Iraq applied a flat tariff rate of 5 percent in 2004. The insurance sector is very small and included three state-owned companies in 2004. rioting. Iraq ranks 137th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. A new banking law significantly liberalized and modernized the banking system. are very high. In addition. including consumption and transfer payments. The government maintains a large public sector and provides a number of subsidies and price controls to consumers and businesses. It is estimated that unemployment and underemployment combined are around 50 percent. Corruption is perceived as widespread. and foreign investors may acquire 40-year leases on—but not ownership of—real estate. Non-tariff barriers include significant delays in trade through customs as well as some import and export bans. U. the employer’s contribution is 12 percent of the same salary base. the government may be able to move closer to its target of reducing overall subsidies by 25 percent and. but it specifically excludes the energy sector. FISCAL FREEDOM — NOT GRADED The suspension of personal and corporate income taxes ended after May 2004. although this affects local investors to a large degree as well. The oil sector accounts for over 95 percent of exports and government revenue. forces are trying to help Iraqis feel safer. real estate.

2% FDI (net inflow): $16.5 billion Official Development Assistance: Multilateral: None Bilateral: None External Debt: $1.827 per capita Unemployment: 4. Financial markets are transparent and open to foreign competition. the government lowered the corporate tax rate to 12. I The economy is 81. Foreign investment is welcome and restricted only in a few sectors. but Ireland’s monetary score suffers somewhat from distortionary EU agricultural subsidies. Ireland’s weakest area is labor freedom. investment freedom. and its overall score is much higher than the regional average.0 billion 4. chemicals. textiles. Government spending as a proportion of GDP is also a disincentive. clothing 219 How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. As in many other European nations. Its overall score is 0. generous labor laws mean that employment is not as flexible as it should be for maximum job creation and sectoral dynamics. highly industrialized economy performed well throughout the 1990s. BACKGROUND: Ireland’s modern. chemicals. Entrepreneurship is made easy by the light regulatory hand of government.3 percent free. computers. Inflation is low. other machinery and equipment. property rights. pharmaceuticals.IRELAND Rank: 7 Regional Rank: 2 of 41 reland’s economy is 81. Property rights are well protected by an efficient. Ireland is ranked 2nd out of 41 countries in the European region.5 percent—far below the EU average.3% free 100 @ @ @ @ @@ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ 80 @ @ @ Ireland has high levels of business freedom. non-trade barriers reduce Ireland’s trade freedom score. partially reflecting new methodological detail.org/index.1 percentage point higher than last year.5% Inflation (CPI): 2. Due largely to its close trading ties with the United States.1 million GDP (PPP): $158.S. and freedom from corruption.6 20 0 1995 2007 QUICK FACTS Population: 4. animal products Imports: $124.7 billion Primarily data processing equipment. it also is saddled with an underperforming health service whose costs have tripled in seven years with only limited gains in output. Even though tariffs are low. comp.5% growth in 2004 6.1% 5-yr. The country has one of the world’s most business-friendly environments. Ireland receives nearly one-third of total U. Ireland is the world’s largest exporter per capita.2 billion Primarily machinery and equipment. petroleum and petroleum products.5 World Average = 60. growth $38.1 trillion (2005 estimate) Exports: $152. financial freedom. which makes it the world’s 7th freest economy. independent judiciary. especially for investment. 60 40 Europe Average = 67. investment going to the EU. monetary freedom. ann. . according to our 2007 assessment. However. live animals. In January 2003.

The only restrictions apply to ownership of airlines by non-EU residents and the purchase of agricultural lands. but dismissing a redundant employee can be costly. = world average BUSINESS FREEDOM — 92. including agricultural and manufacturing subsidies. L L L L L L L L L L 50 100 INVESTMENT FREEDOM — 90% Ireland welcomes foreign investment. The unemployment insurance system offers benefits for up to 15 months to the involuntarily unemployed. and close a business is strongly protected by the national regulatory environment.IRELAND’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 92. and the top corporate tax rate is 12.2 percent. trading mostly in Irish equities and government bonds.6 81. Some 115 banks and other credit institutions. averaging 2. Both the judiciary and the civil service are of high quality.5 percent.7 percent of GDP. Ireland ranks 19th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. The stock exchange is independent but small. in 2002. LABOR FREEDOM — 60. the ACC Bank. There is no approval process for foreign investment or capital inflows unless the company is applying for incentives. FREEDOM FROM CORRUPTION — 74% Corruption is perceived as minimal. Relatively low and stable prices explain most of the monetary freedom score. PROPERTY RIGHTS — 90% Expropriation is highly unlikely. are high.1% Ireland is a member of the euro zone. Various non-tariff barriers are reflected in EU and Irish government policy.1% Ireland has a high income tax rate but a low corporate tax rate.8% Starting a business takes an average of 19 days. a majority of which were foreign. There are no restrictions or barriers with respect to current transfers. Domestic banking is dominated by two Irish banks that together account for about 75 percent of deposits. compared to the world average of 48 days. an additional 5 percent is deducted from Ireland’s monetary freedom score to account for these policies. Inflation in Ireland is relatively low. overall tax revenue as a percentage of GDP was 30.4 0 state-owned enterprises. and closing a business is very easy. and venture capital. The government sold its shares in the last state-owned financial institution. FISCAL FREEDOM — 81.1 73. All domestic and foreign firms that are incorporated in Ireland receive equal treatment. operate. Consequently. In the most recent year. As a participant in the EU’s Common Agricultural Policy. Property is well protected by the court system. The top income tax rate is 42 percent.4% FREEDOM FROM GOVERNMENT — 73. The government also implements restrictive procurement rules.1% Total government expenditures in Ireland. and other market access restrictions. Ireland is increasingly an international hub for insurance. or access to foreign exchange. Bureaucratic procedures generally are transparent and efficient. TRADE FREEDOM — 76. distorting the prices of agricultural products. The overall freedom to start. including over half of the world’s top 20 insurance companies. There is substantial offshore banking. The government also influences prices through 220 2007 Index of Economic Freedom . FINANCIAL FREEDOM — 90% Ireland’s banking and financial system is advanced and competitive.6% Ireland’s trade policy is the same as those of other members of the European Union. In the most recent year. including consumption and transfer payments. were authorized to conduct business in 2004. were operating in 2004. fund management. and an average worker receives about 15 percent of his or her salary in benefits. Consequently. the government subsidizes agricultural production.2 percent of its total revenues from state-owned enterprises and government ownership of property.1 85.5 percent between 2003 and 2005.8 76. regulatory and licensing restrictions. MONETARY FREEDOM — 85. and contracts are secured. and the government received 1. an additional 20 percent is deducted from Ireland’s trade freedom score to account for non-tariff barriers. repatriation of profits. government spending equaled 33. 100 = most free. The non-salary cost of employing a worker is moderate. Foreign investors may participate in the sale of Irish state-owned companies. Other taxes include a value-added tax (VAT) and a tax on interest. Obtaining a business license is simple. The labor market operates under somewhat restrictive employment regulations that could be improved to enhance employment and productivity growth.7 percent in 2005. The business environment has allowed entrepreneurship to flourish in Ireland.1 90 90 90 74 60. About 190 insurance companies and subsidiaries. The common EU weighted average tariff rate was 1.

chemicals. BACKGROUND: Israel gained its independence from Britain in 1948 and fought a series of wars against its Arab neighbors that imposed a high defense burden on the state-dominated economy. monetary freedom.7 billion 4. and greater demand for Israeli exports.7 percentage points higher than last year. The collapse of the 1993 Oslo peace agreement with the Palestinians and the onset of the Intifada in September 2000 depressed tourism.ISRAEL Rank: 37 Regional Rank: 1 of 17 srael’s economy is 68. and labor freedom. The conflict in Lebanon in 2006 casts a cloud of uncertainty over the current economy.6 80 @ @ @ @@ @ @ @ @@ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ Israel enjoys high levels of trade freedom.4 billion Official Development Assistance: Multilateral: $2 million Bilateral: $588 million (93% from the U.382 per capita Unemployment: 10. Israel is weak in business freedom and freedom from government.4% 5-yr. A recovery in 2003–2004 was due to increased tourism.4 percent free. apparel Imports: $52. Its overall score is 1.4% free 100 Mideast/North Africa Average = 57. Complicated and inefficient bureaucracy makes closing a business difficult. Though advanced for the region. Israel’s financial sector is still subject to government intervention and control. .4% growth in 2004 2.6 billion (2005 estimate) Exports: $51. constituting over 40 percent of GDP.S. military equipment. according to our 2007 assessment. Inflation is very low. growth $24. Israel is ranked 1st out of 17 countries in the Middle East/North Africa region.4 billion Primarily machinery and equipment. The labor market is highly flexible. although the government interferes with the market by subsidizing certain basic goods.4% FDI (net inflow): –$1.org/index.2 World Average = 60.0 billion Primarily raw materials. investment freedom. comp. cut diamonds. and its overall score is much higher than the regional average. Tariff rates are low. consumer goods 221 How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. The economy is open to foreign investment in almost all sectors except defense. foreign investment. ann.8 million GDP (PPP): $165. Government spending is high. software. I The economy is 68. textiles. and contributed to economic recession. Israel has developed a modern market economy with a thriving technology sector. which makes it the world’s 37th freest economy. agricultural products. discouraged foreign investment. rough diamonds.) External Debt: $75. 60 40 20 0 1995 2007 QUICK FACTS Population: 6. Despite few natural resources. fuels. grain.4% Inflation (CPI): –0. partially reflecting new methodological detail. investment goods. although revenue generated by state-owned businesses is not large. especially high-tech goods and services.

United Mizrahi Bank. In the most recent year.5 percent of its total revenues from state-owned enterprises and government ownership of property. an additional 10 percent is deducted from Israel’s monetary freedom score to account for these policies. import bans. Privatization has accelerated in recent years. FISCAL FREEDOM — 72% Israel has a very high income tax rate but a moderate corporate tax rate. including consumption and transfer payments. PROPERTY RIGHTS — 70% Contractual arrangements in Israel are generally secure. The energy sector remains largely state-owned and heavily regulated. FREEDOM FROM GOVERNMENT — 60% Total government expenditures in Israel. Supervision is prudent. L L L L L L L L L L 50 100 INVESTMENT FREEDOM — 70% Foreign investment is restricted is some sectors. an additional 20 percent is deducted from Israel’s trade freedom score to account for these non-tariff barriers. The government influences prices through the public sector and provides some subsidies. and honest. Israel ranks 28th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005.8 percent of GDP. are high. The legal system is perceived as independent. As of late 2005. There are restrictions on bank ownership of insurance companies and vice versa. overall tax revenue as a percentage of GDP was 28. 222 2007 Index of Economic Freedom . the government owned over 14 percent of Bank Leumi and over 30 percent of Israel Discount Bank.4 percent in 2005. and regulations conform to international norms. In the most recent year.2% Inflation is low. especially for agriculture production. Although Israel has been moving toward deregulation. Other taxes include a value-added tax (VAT) and a capital gains tax. government procurement rules. Five main groups (Bank Hapoalim. and there are two foreign bank branches.2 72 60 84. Credit is available on market terms. Foreign investments in the banking and insurance sector require prior government approval. Consequently. and financial institutions offer a wide array of credit instruments. a non-transparent tariff rate quota system. Investments in regulated industries. LABOR FREEDOM — 70. The government has made progress in liberalizing its trade regime but still maintains import restrictions. and the top corporate tax rate is 31 percent (scheduled to be reduced to 25 percent by 2010). Bank Leumi. import fees. Entrepreneurship should be easier for maximum job creation. The overall freedom to start. but closing a business can be difficult. government spending equaled 40. but reportedly occurs only if the property is linked to a terrorist threat and expropriation is deemed to be in the interest of national security. Israel Discount Bank. There are rigid regulations on increasing or contracting the number of work hours. and the 2005 Bachar Reform bars commercial banks from owning holdings in mutual funds. Both residents and non-residents may hold foreign exchange accounts. 100 = most free. FREEDOM FROM CORRUPTION — 63% Corruption is perceived as present. mergers. bureaucratic hurdles persist. or other transactions.2% Israel’s weighted average tariff rate was 2. Consequently. and takeovers apply to both foreign and domestic investors.9 percent.7% Starting a business takes an average of 34 days. and export subsidies. compared to the world average of 48 days. such as banking. and there are no controls or restrictions on current transfers. = world average BUSINESS FREEDOM — 69. Expropriation is possible. and First International Bank) dominate the banking sector with over 90 percent of banking assets. Commercial law is clearly written and consistently applied.1% MONETARY FREEDOM — 84. and the same regulations regarding acquisitions. Obtaining a business license is relatively simple.7 75. TRADE FREEDOM — 75. The bureaucracy can be difficult to navigate. but dismissing a redundant employee is relatively costly. Stable prices explain most of the monetary freedom score.2 70 50 70 63 70. and close a business is relatively well protected by the national regulatory environment. The Postal Bank provides bill payment and a few other services but no credit. FINANCIAL FREEDOM — 50% Israel’s financial sector is modern and sophisticated. fair. repatriation of profits.1 0 and services. The top income tax rate is 49 percent. operate. averaging less than 1 percent between 2003 and 2005. and the government has authority to impose price controls on vital goods The labor market operates under relatively flexible employment regulations that could be improved to enhance employment and productivity growth. require prior government approval. burdensome regulations and standards. including the defense industry. The non-salary cost of employing a worker is low. The government has equalized the tax applied to foreign and domestically traded securities. Foreign investment is not screened. and the government received 3.ISRAEL’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 69. particularly for Palestinians.

4% free 100 80 @ @ @@ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @@ @ @ @ @ @ @ @ @ Italy scores highly in business freedom.180 per capita Unemployment: 8. Corruption is not severe relative to some other nations. I The economy is 63. which is far below the world average.0% Inflation (CPI): 2. trade freedom. Freedom from government. Italy is ranked 28th out of 41 countries in the European region. despite government distortion in the agricultural sector. food.ITALY Rank: 60 Regional Rank: 28 of 41 taly’s economy is 63. government spending and tax rates are exceptionally high in order to support an extensive welfare state. How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. according to our 2007 assessment. food Imports: $423. Romano Prodi.2 billion Primarily engineering products. chemicals.5 billion (2005 estimate) Exports: $435. BACKGROUND: Since World War II. ann. energy products. beverages. textiles.9% growth in 2004 1. although the country’s inefficient bureaucracy implements some non-trade barriers that also deter foreign investment. which makes it the world’s 60th freest economy. growth $28. investment freedom.6 20 0 1995 2007 QUICK FACTS Population: 57.9 billion Primarily engineering products. and freedom from corruption are relatively weak.5 World Average = 60. vehicles. Enforcement of government regulations and judicial decisions are further impeded by an inefficient civil service. Despite strong international competition. As an EU member. tobacco 223 . Starting a business takes about 13 days. and monetary freedom. small and medium-sized enterprises continue to thrive in manufacturing and high design.5 billion Official Development Assistance: Multilateral: None Bilateral: None External Debt: $922. machinery. property rights. The state’s large pension liabilities.2% 5-yr.6 million GDP (PPP): $1. partially reflecting new methodological detail. nonferrous metals.7 percentage point higher than last year. Italy has been a central force in European integration and the military structure of NATO.org/index. comp. textiles and clothing. minerals. The tariff rate is low. transport equipment. 60 40 Europe Average = 67. and its overall score is equal to the regional average. Italy faces some serious economic challenges. clothing. labor market rigidities.6 trillion 0.4 percent free. particularly in the northern regions. Its overall score is 0. chemicals. Italy has a standardized monetary policy that yields relatively low inflation. and it remains to be seen whether the limited reforms made by former Prime Minister Silvio Berlusconi will be repealed or augmented by his successor. but it is high for an advanced economy.2% FDI (net inflow): –$2. Tourism and services are among the most important sectors. and bureaucratic burdens remain unaddressed. As in many other European social democracies. transport equipment. however.

and foreign participation is welcome. telecommunications.9 percent of its total revenues from state-owned enterprises and government ownership of property.5 46. In the most recent year. Consequently. TRADE FREEDOM — 76. inadequate infrastructure. including privatization of the stock exchange. Italy ranks 40th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005.5% Italy has high tax rates.2 percent. and other market access restrictions. Entrepreneurship should be easier for maximum job creation and economic growth. payments. and a rigid labor market as major disincentives. PROPERTY RIGHTS — 50% FISCAL FREEDOM — 68. Property rights and contracts are secure. and the government received 0. overall tax revenue as a percentage of GDP was 42. although the government can veto acquisitions involving foreign investors.8 percent of GDP. and close a business is relatively well protected by the national regulatory environment. The common EU weighted average tariff rate was 1. and enforcement of intellectual property is weak. The overall freedom to start. Regulations and prohibitions can be burdensome. and only two major financial institutions (Cassa Depositi e Prestiti and Bancoposta) remain state-controlled. FINANCIAL FREEDOM — 60% In Italy’s modern financial sector. an additional 10 percent is deducted from Italy’s monetary freedom score to account for these policies. government spending equaled 47. The top income tax rate is 43 percent. highway tolls. and the tax code does not discriminate against foreign investments.1 percent between 2003 and 2005.4 80. Relatively stable prices explain most of the monetary freedom score. Italy’s banking sector was dominated by the state until a recent series of privatizations and consolidations. Unemployed individuals receive benefits for up to 180 days (270 days if over 50 years of age).7 76. an additional 20 percent is deducted from Italy’s trade freedom score to account for non-tariff barriers. but the delivery of justice is extremely slow. and dismissing a redundant employee can be costly. L L L L L 50 INVESTMENT FREEDOM — 70% Italy welcomes foreign investment. transfers. FREEDOM FROM CORRUPTION — 50% FREEDOM FROM GOVERNMENT — 46. Consequently. and many judges are politically oriented. and an advertising tax.7 percent in 2005. compared to the world average of 48 days. The government also retains the power to introduce price controls. Foreign investment is closely regulated in the defense. including consumption and transfer payments.8% Italy is a member of the euro zone. aircraft manufacturing. and domestic travel. Italy has the EU’s fourth-largest insurance market. Rules on expanding or contracting the number of work hours are rigid. L L L L L 100 100 = most free. Various non-tariff barriers are reflected in EU and Italian government policy. are very high. LABOR FREEDOM — 57.6% Italy’s trade policy is the same as those of other members of the European Union.6 percent of total assets. and approval is required to gain control of a financial institution. and the top corporate tax rate is 33 percent.6 0 water. distorting agricultural prices.6% The labor market operates under restrictive employment regulations that hinder employment and productivity growth. Government ownership of banks has fallen sharply. credit is allocated on market terms. Foreigners may not buy land along the Italian border.8 70 60 50 50 57. and many companies choose to settle out of court. averaging 2. Corruption is perceived as present.ITALY’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 73. Inflation in Italy is relatively low. or current transfers. = world average BUSINESS FREEDOM — 73. The government has adopted reforms. including agricultural and manufacturing subsidies. There are no barriers to repatriation of profits. electricity. As a participant in the EU’s Common Agricultural Policy. a tax on interest. Corruption is more common than in other European countries. domestic airline. that are intended to revitalize Italy’s underdeveloped capital markets. prescription drugs. and shipping sectors. Investors cite excessive bureaucracy. operate. The six largest banks account for over 54. and an average worker receives about 40 percent of his or her salary in benefits. In the most recent year.6 68. regulatory and licensing restrictions. The non-salary cost of employing a worker is very high. MONETARY FREEDOM — 80. Obtaining a business license and closing a business are relatively simple. The government does not block foreign investment. The government implements restrictive pharmaceutical and biotechnology regulations. the government subsidizes agricultural production. Other taxes include a value-added tax (VAT). gas.4% Total government expenditures in Italy.7% Starting a business takes an average of 13 days. Items subject to rate setting at the national level include drinking 224 2007 Index of Economic Freedom .

petroleum. Ivory Coast faces significant challenges. Property rights are not secured by an independent judiciary.org/index. A tenuous peace was facilitated. The political atmosphere makes it difficult to invest in Ivory Coast even though the state nominally welcomes capital. coffee. grading of economic freedom will be suspended next year. palm oil. comp. and the agricultural sector employs more than 60 percent of the population. Civil war erupted in 2002 after a failed coup. How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. bananas. Commercial regulation and bureaucratic red tape are burdensome.3 percentage points lower than last year.8% growth in 2004 –0. Its overall score is 1. fish Imports: $6. which makes it the world’s 105th freest economy.2 billion Primarily fuel. and imports are subject to substantial non-tariff barriers. pineapples. according to our 2007 assessment.IVORY COAST Rank: 105 Regional Rank: 16 of 40 vory Coast’s economy is 55.551 per capita Unemployment: 13% (1998 estimate) Inflation (CPI): 1. investment freedom (if it were graded). If the current situation fails to improve. but the government subsidizes basic goods like petroleum. food 225 . Inflation is also low. Government expenditures are low. BACKGROUND: General Robert Guei seized power in a 1999 coup and later was forced to flee after refusing to accede to President Laurent Gbagbo’s victory in the 2000 election. legislative elections originally set for October 2005 have been rescheduled for October 2006. Business freedom.6 @ @ @ @@ @ @@ @ @ @ @ @@ @ @ @ @ @ @ @ @ @ @ @ @ @ @@ @ @ @ @ @@ @ @ 60 Ivory Coast has relatively high levels of freedom from government and monetary freedom.9% 5-yr. As a nation in the middle of civil unrest.9 million GDP (PPP): $27. may not be applicable to areas that the government does not control. and the level of income from stateowned businesses is relatively low.7 billion Exports: $7.5% free 100 80 Sub-Saharan Africa Average = 54. It would also score well in financial freedom if it were not for civil unrest. I The economy is 55. and as of this writing. because of ongoing civil unrest. Instability undermines economic growth and discourages investment. Ivory Coast’s current score is based on the government’s data and policies that.5 percent free. growth $1. ann.4% FDI (net inflow): $360 million (gross) Official Development Assistance: Multilateral: $93 million Bilateral: $252 million (13% from the U. and the government and judiciary are subject to corruption and lack of accountability. trade freedom. 40 20 0 1995 2007 QUICK FACTS Population: 17.7 billion 1. The average tariff rate is high. capital equipment. partially reflecting new methodological detail. The economy relies on cash crops.7 billion Primarily cocoa. and corruption is debilitating.7 World Average = 60. property rights.S. timber. and corruption all score poorly. cotton.) External Debt: $11.

6 40 70 30 19 58. Although the financial system remains functional.7 percent in 2004.2 percent. corruption in customs and government procurement. and the government received 12. TRADE FREEDOM — 58. compared to the world average of 48 days. petroleum products. and other outside influence. The insurance sector consists of about 30 companies and is part of a larger regional insurance system involving 14 African countries. Consequently. members of the Central African Economic and Monetary Community (CEMAC).7 percent of its total revenues from state-owned enterprises and government ownership of property.2 78.2 percent between 2003 and 2005. is slow. red tape and bureaucracy still impede entrepreneurial activities. In the most recent year. PROPERTY RIGHTS — 30% The judiciary.2% Total government expenditures in Ivory Coast. Regulations on increasing or contracting the number of work hours are rigid. controls. Ivory Coast is home to the WAEMU’s capital markets. Entrepreneurship should be easier for maximum job creation. and authorization. depending on the transaction. Relatively moderate and unstable prices explain most of the monetary freedom score. and dismissing a redundant employee is costly. but the ongoing political crisis and corruption pose significant disincentives.6% Ivory Coast’s weighted average tariff rate was 10. The top income tax rate is 60 percent. seeds. The government regulates the prices of pharmaceuticals. and the top corporate tax rate is 35 percent. and public-sector goods and services. Judges serve at the discretion of the executive. FISCAL FREEDOM — 66. and saccharin.3 86. but closing a business can be relatively easy. FREEDOM FROM GOVERNMENT — 86. military. pegged to the euro. import prohibitions and restrictions. distilling equipment. Cocoa prices and quotas are maintained as part of a government cocoa price stabilization program. and Comoros must be approved by the government. plastic bags. overall tax revenue as a percentage of GDP was 15. although constitutionally independent.3% Ivory Coast has high tax rates.4 0 an additional 10 percent is deducted from Ivory Coast’s monetary freedom score to account for these policies. FINANCIAL FREEDOM — 70% Ivory Coast’s financial sector is affected by the ongoing political crisis.IVORY COAST’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 48. including consumption and transfer payments.6% Inflation in Ivory Coast is moderate. are low. The two largest banks are majority-owned by French banks. 226 2007 Index of Economic Freedom . There were 17 commercial banks in 2005. and there are credible reports that they submit to political pressure and financial influence. and import authorization requirements for various goods including petroleum products. an additional 20 percent is deducted from Ivory Coast’s trade freedom score. The overall freedom to start. and nonresidents may hold them with BCEAO approval. members of the West African Economic and Monetary Union (WAEMU). The eight BCEAO member countries use the CFA franc. commercial banks in rebel-controlled areas have been closed since the start of the civil war. Other transfers are subject to numerous requirements.1% Starting a business takes an average of 45 days.6 66. Other taxes include a value-added tax (VAT) and a tax on interest. averaging 3. Transfers to countries other than France. Non-tariff barriers include import fees and taxes. operate. = world average BUSINESS FREEDOM — 48. Privatization remains stalled. Consequently.1 58. inefficient. animal products. Capital transactions are subject to government authorization in many cases. The BCEAO governs banking and other financial institutions. Although the government has made some efforts to increase regulatory transparency.4% The labor market operates under restrictive employment regulations that hinder employment and productivity growth. Monaco. weak protection of intellectual property rights. The non-salary cost of employing a worker is high. and close a business is seriously restricted by the national regulatory environment. The government retains small stakes in several banks and owns two specialized financial institutions. The banking sector accounts for 80 percent of financial sector assets. government spending equaled 20. Trading on the stock market is minimal despite over 40 listings. and subject to executive branch. Residents may hold foreign exchange accounts with the approval of the government and the Central Bank of West African States (BCEAO). Obtaining a business license is difficult. LABOR FREEDOM — 58. MONETARY FREEDOM — 78. live plants. FREEDOM FROM CORRUPTION — 19% Corruption is perceived as widespread. Ivory Coast ranks 152nd out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. import price floors. In the most recent year. 100 = most free. L L L L L L L L L L 50 100 INVESTMENT FREEDOM — 40% The government welcomes foreign investment.2 percent of GDP.

5% growth in 2004 1.org/index. Starting and closing a business are simple. Sworn in as prime minister in March 2006.4 billion Exports: $3. freedom from corruption. trade freedom. wearing apparel. and Asia. bauxite. including the purchase of privatized state enterprises. average tariff rates are high. construction materials 227 .163 per capita Unemployment: 11.0 billion 2. Its overall score is 1. Jamaica is ranked 9th out of 29 countries in the Americas. and drug-related violence. In recent years. mineral fuels Imports: $5. fuel. comp. and freedom from government.1% free 100 80 @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @@ @ @ @ @ @ @ @ @ @ @ @ @ @ @@ @ @ @ 60 40 Americas Average = 62. factory closures have contributed to rising unemployment. tourism. Government expenditure is high as a percentage of GDP and up to the level of some EU social welfare states.6% 5-yr. bananas. The economy is 66. Jamaica enjoys high fiscal freedom. rum. machinery. investment freedom. How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. capital goods parts and accessories. Jamaica was once a major sugar producer. according to our 2007 assessment. beverages.JAMAICA Rank: 46 Regional Rank: 9 of 29 J amaica’s economy is 66. Portia Simpson-Miller faces major challenges from crime.) External Debt: $6. The labor market is highly flexible and open. but industries lack investment and modernization.S.7% Inflation (CPI): 13.9 billion Primarily alumina. The court system is rooted in English common law traditions but suffers from a significant case backlog and some corruption. The top corporate tax rate is relatively low (though personal income rates are higher). BACKGROUND: A former British colony. money laundering. The growing use of ethanol blends in gasoline throughout the hemisphere could lead to a revival of Jamaica’s sugar industry. coffee. ann.6 20 0 1995 2007 QUICK FACTS Population: 2. and business freedom. and its overall score is higher than the regional average. other consumer goods.3 billion Primarily food. and bauxite. and tax revenue is not particularly large as a percentage of GDP. Jamaica welcomes foreign investment in almost all areas of its economy.6% FDI (net inflow): $560 million Official Development Assistance: Multilateral: $86 million Bilateral: $81 million (41% from the U. industrial supplies. Central America. transport equipment.3 World Average = 60. labor freedom. chemicals. An understaffed police force is also a problem. corruption. Jamaica has weak property rights. Its economy is diverse.6 million GDP (PPP): $11. Today. Despite a positive economic environment. yams. largely as a result of growing industrial competition from Mexico. sugar.1 percent free. which makes it the world’s 46th freest economy. growth $4. although an inefficient bureaucracy hinders business activity. partially reflecting new methodological detail. it gets most of its foreign exchange from remittances.6 percentage points lower than last year.

15 financial institutions were operational in 2005 including six commercial banks. In 1997.4% Jamaica’s weighted average tariff rate was 9. and bus fares. operate. restrictive import and export licensing rules. and crime poses a great threat to foreign investment. transfers. and export subsidies add to the cost of trade and restrict competition. Consequently. There is no screening of foreign investments. FISCAL FREEDOM — 83. but dismissing a redundant employee is costly. There are no restrictions on transactions. After restructuring and consolidation.3 60. FINANCIAL FREEDOM — 60% Jamaica’s financial markets are underdeveloped and emerging from a mid-1990s financial crisis. but closing a business is relatively easy. In the most recent year. and several credit unions. Regulations on increasing or contracting the number of work hours are flexible.4% Total government expenditures in Jamaica.9 80 60 50 36 74.4 67. media. Consequently.7 percent of GDP. and foreign investors are not excluded from acquiring privatized state-owned enterprises.4 70. Residents and nonresidents may hold foreign exchange accounts.8 percent in 2003. MONETARY FREEDOM — 70.4% Jamaica has moderate tax rates. However. Cumbersome bureaucracy is a major problem for business. In the most recent year. The government no longer has any stake in any commercial bank.6 percent of its total revenues from state-owned enterprises and government ownership of property. or involve sectors such as life insurance. Foreign investors and domestic interests receive equal treatment. import fees. and trials are sometimes delayed for years.5 percent. PROPERTY RIGHTS — 50% Jamaica’s legal system is based on English common law principles.JAMAICA’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 78. the government does monitor the pricing of consumer items. and non-residents may purchase real estate. The three largest commercial banks account for 85 percent of commercial bank assets.9% Inflation in Jamaica is high. The top income tax rate is 25 percent. and the government received 8.3 percent. Most prices are set in the market.1% The labor market operates under relatively flexible employment regulations that could be improved to enhance employment and productivity growth. = world average BUSINESS FREEDOM — 78. The overall freedom to start. While non-tariff barriers remain fairly low. compared to the world average of 48 days. import and export bans. and five of the commercial banks are foreign-owned. The non-salary cost of employing a worker is moderate. 228 2007 Index of Economic Freedom . averaging 14. FREEDOM FROM GOVERNMENT — 67. LABOR FREEDOM — 74. but the government regulates utility services including electricity. including consumption and transfer payments. an additional 20 percent is deducted from Jamaica’s trade freedom score to account for these non-tariff barriers. L L L L L 50 L L L L L 100 100 = most free. Other taxes include a value-added tax (VAT) and a property transfer tax. An inadequate police force further weakens the security of property rights.4 percent between 2003 and 2005. are moderate. The government continues to provide concessionary financing through five development banks.1 0 INVESTMENT FREEDOM — 80% Jamaica encourages foreign investment in all sectors. five merchant banks. There are no specific restrictions on foreign participation in capital markets. but projects that affect national security. or repatriation of funds. Capital markets are small and centered on the stock exchange. Unstable prices explain most of the monetary freedom score. Obtaining a business license can be difficult. TRADE FREEDOM — 60. government spending equaled 35. and close a business is relatively well protected by the national regulatory environment. While there are no official policies on price regulation or control. water.3% Starting a business takes an average of 8 days. have a negative impact on the environment. and the top corporate tax rate is 33. or mining are subject to some restrictions. overall tax revenue as a percentage of GDP was 27. FREEDOM FROM CORRUPTION — 36% Corruption is perceived as significant.4 83. an additional 5 percent is deducted from Jamaica’s monetary freedom score to account for these policies. There were 21 insurance companies in 2004. Jamaica ranks 64th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. four building societies. the judiciary lacks adequate resources. the government started to rehabilitate the banking and insurance sectors and strengthened supervision and regulation.

1 billion Official Development Assistance: Multilateral: None Bilateral: None External Debt: $1. Japan is weaker in freedom from government and financial freedom.JAPAN Rank: 18 Regional Rank: 5 of 30 J apan’s economy is 73. Japan enjoys high levels of trade freedom. Despite the confusion. but results remain largely unrealized.5% 5-yr. fuels. electrical machinery. Its overall score is 1 percentage point lower than last year. labor freedom. and the economic dominance of large corporations. fiscal freedom. textiles. which makes it the world’s 18th freest economy. and its overall score is much higher than the regional average. according to our 2007 assessment. Taxes are fairly high. stable deflation in prices has been occurring.6 billion Primarily transport equipment. motor vehicles.251 per capita Unemployment: 4. Virtually all commercial operations are simple and transparent.3% growth in 2004 1. property rights.6% free 100 80 @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ 60 @ @ @@ @@ @@ @ @ @@ @ 40 Asia Average = 59. contract agreements are highly respected by the judiciary.1 World Average = 60. business freedom. and business regulation is efficient. raw materials 229 . food. Total government spending equals more than a third of GDP. After World War II.7 trillion 2. The financial sector is wholly modern and developed. and overall tax revenue is moderate as a percentage of GDP. chemicals Imports: $542. Japan is ranked 5th out of 30 countries in the Asia–Pacific region. The economy experienced a severe recession in the early 1990s and stagnated for the rest of the decade. such as privatization of the postal system and banking and financial reforms. freedom from corruption.4 billion Primarily machinery and equipment. There is very little corruption in the civil service. but it is also subject to strong government influence and host to a variety of legal restrictions on capital.8 million GDP (PPP): $3. growth $29.6 20 0 1995 2007 QUICK FACTS Population: 127. which can impede smooth judicial handling of commercial disputes. semiconductors. comp. ann.6 trillion Exports: $636. BACKGROUND: Japan is one of the world’s most developed countries. The average tariff rate is low. Long-term challenges include an immense government debt equaling 170 percent of GDP. partially reflecting new methodological detail. The economy is 73. A very modest.7% Inflation (CPI): 0% FDI (net inflow): –$23. but high levels of protectionism left the country vulnerable. Prime Minister Junichiro Koizumi initiated structural reforms. Contracts in Japan are often imprecise.org/index. chemicals.6 percent free. How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. and monetary freedom. it achieved rapid economic growth by pursuing an aggressive export-oriented economic policy. a rapidly aging population combined with low birth rates.

and banks are often shareholders in companies with which they conduct business.2 92 60 50 70 73 73. major producers. Obtaining a business license is relatively simple.2 80. but indirect regulation influences prices on a variety of products. petroleum. LABOR FREEDOM — 73. and an inefficient customs process add to the cost of trade. Other taxes include a value-added tax (VAT). For decades. and an inhabitants’ tax. compared to the world average of 48 days. The top income tax rate is 37 percent. TRADE FREEDOM — 75. and 26 foreign firms account for 25 percent of the insurance market.2 percent average rate of deflation between 2003 and 2005. Consequently. an additional 5 percent is deducted from Japan’s monetary freedom score to account for these policies. restrictive sanitary and phytosanitary rules. The government-owned postal savings system.4% MONETARY FREEDOM — 92% Japan experienced a –0. water. The non-salary cost of employing a worker is moderate. is the world’s largest single pool of savings and accounts for a third of Japan’s deposits. contracts are highly respected. Japanese businesses tend to write their contracts in general terms. Japan’s insurance industry is the world’s second largest. have been able to dictate retail as well as wholesale prices.3 75. aerospace.6% Japan has a high income tax rate and a burdensome corporate tax rate.2% Total government expenditures in Japan. repatriation of profits. The government has undertaken much-needed reform measures to ensure greater regulatory transparency. government spending equaled 37. In the most recent year. FINANCIAL FREEDOM — 50% Japan’s financial system is competitive but remains subject to considerable government influence. or real estate transactions by residents or non-residents.3% Starting a business takes an average of 23 days. FISCAL FREEDOM — 80. FREEDOM FROM GOVERNMENT — 67. a tax on interest. There are no controls on the holding of foreign exchange accounts or on transactions. which does not pay taxes and offers higher than market rate interest on deposits. overall tax revenue as a percentage of GDP was 25. import bans. The labor market operates under relatively flexible employment regulations that could be improved to enhance employment and productivity growth.3 percent of GDP. electricity. import restrictions. forestry. services and agricultural market access barriers. The overall freedom to start.4 percent in 2004. Deregulation and international competition have changed Japanese banking and led to consolidation. Regulations related to increasing or contracting the number of work hours are not flexible. cross-holding of shares among companies belonging to the same business grouping (keiretsu). 230 2007 Index of Economic Freedom . and leather manufacturing. operate. Exclusive buyer-supplier networks and alliances are still maintained by some keiretsu. a non-transparent tariff rate quota system. backed by regulators ostensibly concerned with price stability.2% Japan’s weighted average tariff rate was 2. Both domestic and foreign investors have free access to a wide array of credit instruments at market rates. Japan ranks 21st out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. telecommunications. Foreign investors must notify and obtain approval from the government for investments in agriculture. and the government received 1 percent of its total revenues from state-owned enterprises and government ownership of property. and close a business is strongly protected by the national regulatory environment. limiting competition from foreign firms and domestic newcomers. are high. In the most recent year. Consequently. current transfers. Such stable prices explain most of the monetary freedom score. and the top corporate tax rate is 30 percent. The government affects the supply of credit through state-run financial institutions. gas. and dismissing a redundant employee is not costly.4 0 INVESTMENT FREEDOM — 60% Foreign acquisition of Japanese firms is inhibited by insufficient financial disclosure practices. Financial transparency is insufficient. an additional 20 percent is deducted from Japan’s trade freedom score to account for these non-tariff barriers. and public attitudes about foreign takeovers.JAPAN’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 94. agriculture and other subsidies. = world average BUSINESS FREEDOM — 94.3 percent. PROPERTY RIGHTS — 70% Property rights are generally secure in Japan. including consumption and transfer payments. The courts do not discriminate against foreign investors but are not well suited to litigation of investment and business disputes.6 67. Non-transparent regulations. Japanese corporations and banks maintain tight relationships. and closing a business is easy. but despite this lack of precision. FREEDOM FROM CORRUPTION — 73% Corruption is perceived as minimal. The only formal price controls apply to rice. L L L L L L L L L L 50 100 100 = most free. Capital markets are well developed.

2 billion Exports: $6. growth $4. partially reflecting new methodological detail.5 billion 7. Jordan is weaker in terms of trade freedom. and the government has succeeded in phasing out direct subsidies of goods. Jordan is ranked 3rd out of 17 countries in the Middle East/North Africa region. many of whom work in the Persian Gulf oil kingdoms. freedom from corruption. though firing workers remains overly complicated. Its overall score is 0.4% FDI (net inflow): $620.2 percentage point higher than last year.S. The judiciary is not corrupt. Jordan suffers from high unemployment. and investment freedom. and its overall score is higher than the regional average. aid. property rights. machinery. heavy debt. which makes it the world’s 53rd freest economy. potash. but it is subject to royal influence.4 million GDP (PPP): $25. Personal and corporate income tax rates are low.) External Debt: $8. Jordan’s financial sector is making serious efforts to meet international standards. BACKGROUND: Jordan gained its independence from Britain in 1946 and is a constitutional monarchy with relatively few natural resources and an economy supported by foreign loans.3 million Official Development Assistance: Multilateral: $166 million Bilateral: $527 million (72% from the U.4% 5-yr.org/index.JORDAN Rank: 53 Regional Rank: 3 of 17 J ordan’s economy is 64 percent free. How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. and overall tax revenue represents about one-fifth of GDP.5% (2003 estimate) Inflation (CPI): 3. Jordan enjoys relatively high levels of monetary freedom.688 per capita Unemployment: 14. The government maintains regulatory obstacles to trade and an opaque bureaucracy. particularly for the Middle East. A variety of restrictions have limited the opportunities for foreign investment in Jordan.0 billion Primarily clothing. and remittances from expatriate workers. The labor market is fairly flexible. textile fabrics. pharmaceuticals Imports: $9. King Abdullah II has undertaken political. manufactured goods 231 . freedom from government.6 @ @@ @ @ @@ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ 60 40 20 0 1995 2007 QUICK FACTS Population: 5. transport equipment. The economy is 64% free 100 80 @@ @ Mideast/North Africa Average = 57.2 World Average = 60. Corruption is extremely low. and the high cost of oil imports. according to our 2007 assessment. vegetables. and labor freedom. comp. Developed and increasingly modern. fertilizers. Inflation is low.4 billion Primarily crude oil.7% growth in 2004 5. fiscal freedom. phosphates. economic. ann. manufactures. financial freedom. Jordan joined the World Trade Organization and signed a free trade agreement with the United States in 2000 and signed an association agreement with the European Union in 2001. and regulatory reforms since coming to power in 1999.

8 percent. and close a business is restricted by the national regulatory environment. and a property transfer tax. rural and urban development. and water. and the government received 12. Relatively unstable prices explain most of the monetary freedom score. overall tax revenue as a percentage of GDP was 20. In recent years. Other taxes include a value-added tax (VAT). operate. wholesale and retail trade. housing. and industry. import taxes and fees. five investment banks. accounting for about 60 percent of total banking assets. a tax on interest. The non-salary cost of employing a worker is moderate. government spending equaled 36.JORDAN’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 54. are high. = world average BUSINESS FREEDOM — 54. and advertising. Consequently. FREEDOM FROM GOVERNMENT — 64. transfers. transactions. but import restrictions. but closing a business is difficult. TRADE FREEDOM — 64. Despite a law passed in 2001 to limit its influence. but it does own five specialized credit institutions focused on agricultural credit.1% Total government expenditures in Jordan. stone quarrying.9% The labor market operates under relatively flexible employment regulations that could be improved to enhance employment and productivity growth. LABOR FREEDOM — 67. In the most recent year. Both the top income tax rate and the top corporate tax rate are 25 percent.5% Inflation in Jordan is moderate.1 83. Consequently. an additional 5 percent is deducted 232 2007 Index of Economic Freedom . The government guarantees loans to Jordanian small and medium-size industries through the Jordan Loan Guarantee Corporation. The insurance sector has 26 companies.9 percent of GDP. There are no restrictions or controls on payments. food services.9 percent in 2005. and a foreign insurer dominates the life insurance market. import bans. PROPERTY RIGHTS — 50% The judiciary is generally independent. or repatriation of profits. compared to the world average of 48 days. 100 = most free. wastewater treatment. There are nine domestic commercial banks. and land transportation.8% Jordan has low tax rates. Jordan ranks 37th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. averaging 3. but dismissing a redundant employee is not easy. FINANCIAL FREEDOM — 60% Jordan’s financial sector.3 percent between 2003 and 2005. two Islamic banks. custom clearance services. but bureaucratic obstacles and delays remain persistent problems. The overall freedom to start. the Ministry of Justice still wields significant influence over judges’ careers.2% Jordan’s weighted average tariff rate was 7. an additional 20 percent is deducted from Jordan’s trade freedom score to account for these non-tariff barriers. The Arab Bank dominates the sector. telecommunications. While most price controls and subsidies have been eliminated.8 64. and import licensing requirements continue to add to the cost of trade. including consumption and transfer payments. dominated by banking. Real estate purchases require approval. import and export services. FREEDOM FROM CORRUPTION — 57% Corruption is perceived as present.2 88. sports clubs. Despite modest progress in privatization. the state still dominates many sectors of the economy. and reforms are being implemented to bring supervision and regulation in line with international standards.8% Starting a business takes an average of 18 days. In the most recent year.8 64. is fairly well developed. transport. red tape and delays in customs. MONETARY FREEDOM — 83. but the king is the country’s ultimate authority. FISCAL FREEDOM — 88. The government does not own any commercial banks. but the stock exchange is robust by regional standards. Foreign investments may not exceed 50 percent in construction. Capital markets are small. and eight foreign banks. travel agent services.9 0 from Jordan’s monetary freedom score to account for these policies.5 50 60 50 57 67. There is no formal screening process. the government influences the prices of fuel products through subsidies and sets prices for electricity. the government has made efforts to reform its complex regulatory environment. The government has made progress in liberalizing the trade regime. Expropriation is unlikely. L L L L L L L L L L 50 100 INVESTMENT FREEDOM — 50% The government promotes foreign investment. but foreign investors face minimum capital requirements. Obtaining a business license is relatively simple. Foreigners are prohibited from investing in investigative and security services. Residents and non-residents may hold foreign exchange accounts.5 percent of its total revenues from state-owned enterprises and government ownership of property.

metal products.4% free 100 80 @ @ @ @ @ @ @ @ @ @ 60 @ @ @@ @@ @@ @ @ @ @ @@ @ @ @ @ @ @ @ @ @ 40 @ Asia Average = 59. and output is projected to grow from 1. machinery. ann. China has invested billions in oil companies and pipelines to access Kazakhstan’s hydrocarbon resources.440 per capita Unemployment: 8. and the weak rule of law allows for significant corruption and insecure property rights.1 World Average = 60. which makes it the world’s 75th freest economy. and overall tax revenue is somewhat high as a percentage of GDP.8 billion Primarily machinery and equipment. The top income and corporate tax rates are a moderate 20 percent and 30 percent. Foreign investment in virtually all sectors is restricted by exclusive barriers and bureaucratic incompetence. respectively.) External Debt: $32. BACKGROUND: Kazakhstan became an independent nation in 1991. Government expenditure is also somewhat high. however. Investment freedom. grain Imports: $18.6% growth in 2004 10.4 percent free. although the government has gradually been privatizing businesses.3 billion Exports: $22.S. food How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. Government policy actively favors domestic businesses. The economy is 60. Its overall score is 0. and freedom from corruption are weak. Kazakhstan has also begun to develop financial services and light industry sectors. and its overall score is just above the regional average.6 billion 9.org/index. Kazakhstan has a highly flexible labor system.8 percentage point lower than last year.6 billion Official Development Assistance: Multilateral: $19 million Bilateral: $262 million (22% from the U. thanks to an energy boom that began in 2000. Kazakhstan is ranked 10th out of 30 countries in the Asia–Pacific region. chemicals.9% FDI (net inflow): $5. Kazakhstan scores highly in fiscal freedom.4% 5-yr. comp. The energy sector has driven economic growth.6 billion Primarily oil and oil products.2 million barrels a day in 2006 to 3. The government also imposes additional taxes. partially reflecting new methodological detail. freedom from government.5 million barrels a day in 2020.4% Inflation (CPI): 6. political infighting continues within the ruling class. growth $7. ferrous metals.6 20 0 1995 2007 QUICK FACTS Population: 15 million GDP (PPP): $111. according to our 2007 assessment.KAZAKHSTAN Rank: 75 Regional Rank: 10 of 30 K azakhstan’s economy is 60. 233 . following the collapse of the Soviet Union. property rights. and labor freedom. Kazakhstan’s economy has significant shortcomings. Although Nursultan Nazarbayev prevailed in the December 2005 presidential election.

Foreign insurance companies are limited to joint ventures with local companies. At the end of 2005. Foreign banks may not have branches but may establish subsidiaries. arbitrary. There are three state-owned banks (a development bank.9 72. = world average BUSINESS FREEDOM — 66. 234 2007 Index of Economic Freedom . and transfers are subject to government approval. The government must approve ownership of over 25 percent of a bank. Most legal disputes arise from contract breaches or non-payment on the part of the government. and close a business is relatively well protected by the national regulatory environment. and customs corruption continue to add to the cost of trade. Corruption remains widespread. and the government received 4. In the most recent year. but non-transparent and burdensome regulations and standards. are low. an export–import bank. and little progress has been made in promoting competition in agricul- LABOR FREEDOM — 80.9 percent in 2005.5% Starting a business takes an average of 20 days. as well as a number of microfinance institutions. TRADE FREEDOM — 64. but the government imposes a 25 percent cap on foreign capital in the banking system and a 20 percent ceiling on foreign ownership in media companies. and slow. payments. The non-salary cost of employing a worker can be high. Consequently. the number of banks has fallen from 130 banks operating at the end of 1995 to 34 with licenses in January 2006.3 percent of GDP. and strict documentary requirements.9 30 60 30 26 80.2 percent of its total revenues from state-owned enterprises and government ownership of property. Privatization has been gradual but successful. 100 = most free. The market sets most prices. and representative offices. PROPERTY RIGHTS — 30% Kazakhstan’s legal system does not provide sufficient protection for private property. including consumption and transfer payments.3 percent between 2003 and 2005.5% The labor market operates under flexible employment regulations that enhance employment and productivity growth. but dismissing a redundant employee is costless. Most capital transactions. FISCAL FREEDOM — 87. As a result. In the most recent year. opaque government procurement procedures. although the transactions involved have lacked transparency.6 percent. FREEDOM FROM GOVERNMENT — 85. L L L L L L L L L L 50 100 INVESTMENT FREEDOM — 30% The government constantly challenges contractual rights and legislates to favor domestic investors over foreign ones.2% Kazakhstan’s average tariff rate was 7. No sector of the economy is closed to investment. Other taxes include a value-added tax (VAT) and a vehicle tax. compared to the world average of 48 days. operate. FREEDOM FROM CORRUPTION — 26% Corruption is perceived as widespread.9% Total government expenditures in Kazakhstan. and the top corporate tax rate is 30 percent. Obtaining a business license and closing a business can be difficult.KAZAKHSTAN’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 66. Consequently. The government has made progress toward a more liberal trade regime. Relatively high and unstable prices explain most of the monetary freedom score. overall tax revenue as a percentage of GDP was 23.6 85. The insurance sector is small but has 34 licensed companies. Kazakhstan ranks 107th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. The government also influences prices through numerous state-owned enterprises and manufacturing subsidies. Capital markets are underdeveloped. and a housing finance bank) and two development funds. an additional 10 percent is deducted from Kazakhstan’s monetary freedom score to account for these policies. all of which significantly deters foreign investment. The top income tax rate is 20 percent.5 64. Subject to restrictions. It also screens foreign investment proposals in a process that is often non-transparent. and 18 foreign banks had representative offices. quantitative limits. including a risk-weighted 8 percent capital-adequacy ratio. foreign exchange accounts may be held by residents and non-residents. joint ventures. The overall freedom to start. All banks are now required to meet international banking standards.9% Inflation in Kazakhstan is relatively high.2 87.5 0 ture. averaging 7. Regulations regarding firing a worker are flexible and straightforward. an additional 20 percent is deducted from Kazakhstan’s trade freedom score to account for these non-tariff barriers. Lack of transparency and inconsistent application of commercial laws remain obstacles to business. service market access barriers. but the government retains the right to control prices when necessary. 14 banks had foreign participation.6% Kazakhstan has a low income tax rate and a moderate corporate tax rate. government spending equaled 23. MONETARY FREEDOM — 72. FINANCIAL FREEDOM — 60% Kazakhstan’s banking system is the most developed in Central Asia. and the judiciary views itself more as an arm of the executive than as an enforcer of contracts or guardian of property rights.

particularly for the region. and civil service reform has been slow. ann. and investment freedom are all weak.7 World Average = 60. Kenya scores well in fiscal freedom.6 percentage point lower than last year. Corruption is extremely high. Property rights. and overall tax revenue as a percentage of GDP is low. During the past two decades. Despite government steps to combat corruption.S. plastics 235 . and labor freedom. Agriculture accounts for about 25 percent of GDP and employs about 70 percent of the population.1 billion Primarily machinery. Much of the infrastructure is in poor condition. freedom from corruption. The economy is 59. fish. iron. giving Kenya one of the world’s lowest freedom from corruption scores.8 billion Exports: $4.140 per capita Unemployment: 40% (2001 estimate) Inflation (CPI): 11. motor vehicles. and dismissing redundant employees is almost costless. Kenya’s judiciary is underdeveloped and subject to the political whims of the executive.5% 5-yr.4% free 100 80 Sub-Saharan Africa Average = 54. steel. Bureaucracy is extensive. according to our 2007 assessment.) External Debt: $6. Government expenditures are about one-fourth of GDP.5 million GDP (PPP): $38. transportation equipment. and fractures in the coalition have stalled progress on economic reform. which makes it the world’s 82nd freest economy.6% FDI (net inflow): –$2. The labor market is flexible. and state-owned businesses produce a small amount of revenue. cement Imports: $5. resins. growth $1. transportation and financial hub of East Africa. petroleum products. financial freedom.6 million Official Development Assistance: Multilateral: $259 million Bilateral: $521 million (27% from the U. Kenya is ranked 8th out of 40 countries in the subSaharan Africa region. experienced high economic growth in the years following independence in 1963. but it is vulnerable to government influence.6 @ @ @ @ @ @ @ @@ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @@ @ @ 60 40 20 0 1995 2007 QUICK FACTS Population: 33. freedom from government. Kenya has a well-developed financial sector. and its overall score is higher than the regional average. monetary freedom. although growth has improved under the current National Rainbow Coalition (NARC) government.4 percent free. coffee. comp. officials have been implicated in corruption in recent years. Its overall score is 0. horticultural products.3% growth in 2004 2. How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. government mismanagement and corruption have hindered economic growth. BACKGROUND: Kenya. Nontransparent trade regulations and an inefficient customs service hurt trade.2 billion Primarily tea. As in many other sub-Saharan African nations. petroleum products.1 billion 4.KENYA Rank: 82 Regional Rank: 8 of 40 K enya’s economy is 59. partially reflecting new methodological detail.org/index. Personal income and corporate taxes are moderate.

100 = most free. There are no controls or requirements on payments and transfers. opaque government procurement procedures. import restrictions. = world average BUSINESS FREEDOM — 58. Both residents and non-residents may hold foreign exchange accounts. but government approval is required for the sale or issue of most capital and money market instruments and for the purchase of real estate by non-residents. including two majority state-owned banks and two foreign banks. TRADE FREEDOM — 65% Kenya’s weighted average tariff rate was 7. Capital markets are relatively small and focused on the stock exchange.2% The labor market operates under relatively flexible employment regulations that could be improved to enhance employment and productivity growth. and the media. There were 39 insurance companies in 2005. Non-transparent and restrictive regulations.9% Kenya has moderate income and corporate tax rates. sanitary and phytosanitary rules and standards. LABOR FREEDOM — 65. Legislation on privatization was passed by Parliament in August 2005 but does not specify an exact timetable. weak enforcement of intellectual property rights.KENYA’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 58. In the most recent year. Most capital transactions are permitted. are low. The non-salary cost of employing a worker is low. Lack of transparency and inconsistent application of commercial codes are persistent problems.7 percent. FREEDOM FROM GOVERNMENT — 83. and customs corruption add to the cost of trade. particularly from state-owned banks to state-owned enterprises. Commercial courts were established in 2000 to deal with commercial cases. Privatization of state-owned enterprises has been stagnant.6 74. control about two-thirds of banking assets. Foreigners face ownership restrictions in only a few industries. Both the top income tax and top corporate tax rates are 30 percent. FREEDOM FROM CORRUPTION — 21% Corruption is perceived as widespread. The government has taken some steps to address judicial corruption. Kenya ranks 144th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. government spending equaled 24. The overall freedom to start.5 percent in 2005. The government also owns or owns shares in several other domestic financial institutions and influences the allocation of credit.6 percent between 2003 and 2005. MONETARY FREEDOM — 74. and the government received 7.4 50 50 40 21 65. manipulation of import taxes to protect strategic sectors. L L L L L L L L L L 50 100 INVESTMENT FREEDOM — 50% Kenya’s government has relaxed its screening standards and has established the Investment Promotion Center for investment approval. but closing a business is relatively easy. compared to the world average of 48 days. but the sector was highly concentrated with four companies accounting for 75 percent of premiums. Conse- 236 2007 Index of Economic Freedom .9% Starting a business takes an average of 54 days.9 83. and dismissing a redundant employee is relatively costless. Consequently. Obtaining a business license is difficult.5 percent of its revenues from the earnings of state-owned enterprises. and close a business is restricted by the national regulatory environment.6% Total government expenditures in Kenya. The six largest banks. Non-performing loans.2 0 quently. At the end of 2005. remain a problem.4 percent of GDP. an additional 20 percent is deducted from Kenya’s trade freedom score to account for these non-tariff barriers. Property and contractual rights are enforceable but subject to very long delays. Other taxes include a value-added tax (VAT) and an apprentice tax. including infrastructure. Foreign investors may acquire shares in the stock market. Price controls were officially dismantled in 1994.9 65 85. a large number of savings and credit cooperatives. Work permits are required for all foreigners and are hard to obtain. PROPERTY RIGHTS — 40% Kenya’s judicial system is modeled after the British system. and 41 commercial banks. but the government reserves the right to set maximum prices in certain cases and influences prices through agricultural marketing boards and state-owned utilities and enterprises. Entrepreneurship should be easier for maximum job creation. subject to specified limits. an additional 5 percent is deducted from Kenya’s monetary freedom score to account for these policies. overall tax revenue as a percentage of GDP was 17. insurance. FINANCIAL FREEDOM — 50% Kenya’s financial system is one of the most developed in sub-Saharan Africa but is subject to considerable government influence and inadequate supervision. averaging 10. FISCAL FREEDOM — 85. the banking sector included two mortgage financial companies. two building societies. operate. In the most recent year. Relatively high and unstable prices explain most of the monetary freedom score. including consumption and transfer payments.4% Inflation in Kenya is relatively high.

North Korea is ranked 30th out of 30 countries in the Asia–Pacific region. or 157th out of 157 countries. and its overall score is the lowest in the world. textiles.1 World Average = 60. textiles. including China. South Korean and Chinese investments in the economy have alleviated dire conditions. The opening of the Kaesong industrial venture in cooperation with South Korea has been a start in foreign investment. trade freedom. A serious economic decline began in the early 1990s with the end of economic support from the Soviet Union and other Communist-bloc countries.KOREA.S. and private property (particularly land) is strictly regulated by the state. No courts are independent of political interference. DEMOCRATIC PEOPLE’S REPUBLIC OF (NORTH KOREA) Rank: 157 Regional Rank: 30 of 30 N orth Korea’s economy is 3 percent free. which makes it the world’s least free economy. BACKGROUND: The Democratic People’s Republic of Korea has maintained its Communist system since its founding in 1948. machinery and equipment. The government continues to rely on counterfeiting foreign currency and sales of missiles for money. metallurgical products. coking coal.3 billion Primarily minerals. according to our 2007 assessment. Normal foreign trade is almost zero.org/index. financial freedom. Our policy is to give countries low marks for specific freedoms when it is country policy to restrict measurement of those freedoms. although it does score 10 percent in investment freedom and property rights.) External Debt: $12 billion (1996 estimate) Exports: $1. freedom from corruption. investment freedom. How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. North Korea does not score well in a single area of economic freedom. grain 237 . and labor freedom are nonexistent. manufactures (including armaments).4 million GDP (PPP): n/a n/a n/a n/a Unemployment: n/a Inflation (CPI): n/a FDI (net inflow): $40 million (gross) Official Development Assistance: Multilateral: $49 million Bilateral: $152 million (37% from U. Much of North Korea’s economy cannot be measured. That and the nuclear ambitions and isolationism of Kim Jong Il reinforce North Korea’s status as the hermit kingdom. Floods and droughts all but destroyed the agricultural infrastructure and led to severe famine and dislocation of the population during the 1990s. Corruption is virtually immeasurable and. and world bodies like the International Monetary Fund and World Bank are not permitted to gather information.3 billion Primarily petroleum.6 20 @ @ @ @ @ @ @ @ @ @ @ @ @ 0 1995 2007 QUICK FACTS Population: 22. in the case of North Korea. All aspects of business operations are totally controlled and dominated by the government. fishery products Imports: $2. The economy is 3% free 100 80 @ @ @ @ @ @ @ 60 @ @ @@ @@ @@ @ @ @@ @ @ @ @ @ @ @ 40 Asia Average = 59. hard to distinguish from necessity. Business freedom.

A rumored overhaul of the financial system to permit firms to borrow from banks has not materialized. the government has banned sales of grain at markets and returned to a rationing system. North Korea introduced price and wage reforms that consisted of reducing government subsidies and telling producers to charge prices that more closely reflect costs. China and South Korea.NORTH KOREA’S TEN ECONOMIC FREEDOMS Business Freedom 0 Trade Freedom 0 Fiscal Freedom 0 Fdm fm Government 0 Monetary Freedom 0 Investment Freedom 10 Financial Freedom 0 Property Rights 10 Fdm fm Corruption 10 Labor Freedom 0 0 Given the lack of necessary inflation data. L L L L L L L L L L 50 100 INVESTMENT FREEDOM — 10% North Korea does not welcome foreign investment. Inter-Korean trade remains constrained in scope by North Korea’s difficulties with implementing needed reform. factory managers have had more autonomy to set wages and offer incentives. foreign investment is prohibited. and there are no equity markets. in 2002. The government provides most funding for industries and takes a percentage from enterprises. However. but the labor market still operates under highly restrictive employment regulations that seriously hinder employment and productivity growth. FISCAL FREEDOM — 0% No data on income or corporate tax rates are available. especially in agricultural goods. One attempt to open the economy to foreigners was its first special economic zone. LABOR FREEDOM — 0% The government controls and determines all wages. Non-tariff barriers are significant. With the ongoing crisis in agriculture. and formal trade is minimal. PROPERTY RIGHTS — 10% Property rights are not guaranteed in North Korea. and close a business is extremely restricted by the national regulatory environment. The overall freedom to start. Most North Korean trade is de facto aid. The state directs all significant economic activity. FREEDOM FROM CORRUPTION — 10% North Korea’s informal market is immense. 238 2007 Index of Economic Freedom . a score of zero is assigned. There is an increasing preference for foreign currency. MONETARY FREEDOM — 0% In July 2002. FINANCIAL FREEDOM — 0% North Korea is a Communist command economy and lacks a private financial sector. such figures as are available with respect to North Korea’s government expenditures are highly suspect and outdated. located at Rajin-Sonbong in the northeast. Kumgang and Kaesong are more enticing. 100 = most free. Data on North Korean trade are limited and compiled from trading partners’ statistics. However. Almost all property belongs to the state. as a result of famines and oppressive government policies. the result of these measures has been rampant inflation for many staple goods. Wage rates in the special zone are unrealistically high. operate. The central bank also serves as a commercial bank with a network of local branches. but government regulations make the creation of any entrepreneurial activities virtually impossible. Given the absence of published official macroeconomic data. such as changes in foreign investment codes and restructuring in industry and management. The government implemented limited economic reforms. Aside from these few economic zones where investment is approved on a case-by-case basis. The economic reforms implemented in 2002 allegedly brought some changes at the enterprise and industrial level. A South Korean bank has opened a branch in the Kaesong zone. = world average BUSINESS FREEDOM — 0% The state regulates the economy heavily through central planning. without matching supply-side measures to boost output. FREEDOM FROM GOVERNMENT — 0% The government owns all property and sets production levels for most products. Because of debts dating back to the 1970s. a score of zero is assigned. The state holds a monopoly on insurance. There is also an active informal market in currency and in trade with China. and state-owned industries account for nearly all GDP. Foreign aid agencies have set up microcredit schemes to lend to farmers and small businesses. most foreign banks will not consider entering North Korea. mainly from North Korea’s two main trading partners. Since the 2002 economic reforms. More recent special zones at Mt. TRADE FREEDOM — 0% The government controls all imports and exports. Rajin-Sonbong is remote and still lacks basic infrastructure. and the judiciary is not independent. as the state controls the labor supply and insists on taking its share. Given the lack of necessary tariff data.

comp. ships. and its overall score is higher than the regional average. motor vehicles.S. Investment in South Korea is easy. oil. South Korea is ranked 7th out of 30 countries in the Asia–Pacific region. BACKGROUND: South Korea is one of Asia’s most vibrant democracies. South Korea’s greatest challenge.8 billion Primarily machinery. organic chemicals. steel. S The economy is 68. financial freedom.2 billion Primarily semiconductors. monetary freedom. How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage.499 per capita Unemployment: 3.6% FDI (net inflow): $2.6% free 100 80 @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @@ @ @ @ @ @ @ @ @ @ @ South Korea has high levels of business freedom.4% 5-yr.9 billion (2005 estimate) Exports: $299. transport equipment. growth $20.) External Debt: $153. and property rights. and labor freedom are weak.org/index. The labor market remains rigid despite the government’s efforts to enhance market flexibility in recent years. steel. and property rights are protected in a transparent manner. The rule of law is strong. wireless telecommunications equipment. The financial system is advanced.6 percent free. REPUBLIC OF (SOUTH KOREA) Rank: 36 Regional Rank: 7 of 30 outh Korea’s economy is 68. Both total government expenditures relative to GDP and inflation are fairly low as well. plastics 239 .7% Inflation (CPI): 3.KOREA.9 billion Official Development Assistance: Multilateral: $1 million Bilateral: $109 million (0% from the U.6 20 0 1995 2007 QUICK FACTS Population: 48. Its overall score is 0. computers.1 World Average = 60. according to our 2007 assessment. freedom from government.6 billion 4.6 percentage point higher than last year. is managing its increasing interaction with North Korea in light of ongoing tensions resulting from the North’s nuclear programs and deteriorating relations with major powers in the region. but it remains partially dominated by the government. fiscal freedom. the economy continues to be dominated by the chaebols (large conglomerates). The corporate tax rate is low. Although the government did much to liberalize the financial and economic sectors in the aftermath of the crisis. 60 @ @ @@ @@ @@ @ 40 Asia Average = 59. petrochemicals Imports: $269. a 1997 economic financial crisis revealed structural deficiencies that have been largely corrected. as the government has made several efforts over the past decade to open the economy to foreign capital. electronic equipment. investment freedom. South Korea’s trade freedom. Non-tariff barriers are common. both economically and politically. which makes it the world’s 36th freest economy. electronics.6% growth in 2004 5. but South Korea’s monetary score is hurt by government subsidies of several sectors. ann. After several decades of rapid industrialization and modernization.1 million GDP (PPP): $985. partially reflecting new methodological detail.

Payments. Industrial Bank of Korea. Both residents and non-residents may hold foreign exchange accounts. Foreign banks own majority stakes in four of the eight major commercial banks and account for roughly one-third of banking assets. National Agricultural Co-operative Federation. The non-salary cost of employing a worker is high. However. and a property tax.1% Starting a business takes an average of 22 days. government spending equaled 28. FINANCIAL FREEDOM — 50% South Korea has one of the most advanced and sophisticated financial systems among the world’s fast-growing economies. transfers. There were 32 stateowned enterprises as of January 2006.19 percent of its total revenues from state-owned enterprises and government ownership of property. or repatriation of profits are subject to reporting requirements or restrictions on amounts permitted for specified periods. Consequently.5% Total government expenditures in South Korea. non-transparent and restrictive regulations and standards. Export–Import Bank of Korea. Contracts are often considered as a matter of consensus that allows for flexibility. but bureaucracy and lack of transparency can still hinder entrepreneurial activities. a special excise tax. and some energy prodThe labor market operates under restrictive employment regulations that hinder employment and productivity growth.2 81 81.1 64. In August 2005. import taxes. The overall freedom to start. South Korea ranks 40th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. The government regulates or controls prices in certain sectors. and certain agricultural sectors remain partially closed. and services market access barriers add to the cost of trade. telecommunications. Industrial Bank of Korea. The government has been selling its shares in private banks but retains some ownership positions. The government has removed restrictions on foreign investors that acquire companies through mergers and acquisitions. but media. an additional 10 percent is deducted from South Korea’s monetary freedom score to account for these policies.SOUTH KOREA’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 83. Other taxes include a value-added tax (VAT). the justice system can be inefficient and slow. The government still owns the Korea Development Bank. FISCAL FREEDOM — 81% South Korea has a high income tax rate but a moderate corporate tax rate. Relatively unstable prices explain most of the monetary freedom score. averaging 3 percent between 2003 and 2005. including a majority of the second largest domestic bank. and the top corporate tax rate is 27. The insurance sector is large and well developed. Strict adherence to contract terms is difficult. the government eased regulations and expanded tax incentives. Capital markets are deep and sophisticated. and closing a business is easy. TRADE FREEDOM — 64. electric power.6 percent. 100 = most free. weak enforcement of intellectual property rights.2% South Korea’s weighted average tariff rate was 7. including consumption and transfer payments. transactions.9 percent in 2005. including agriculture. and other utilities. The top income tax rate is 38.5 79 70 50 70 50 57. There are numerous restrictions on ownership of financial institutions.1 percent of GDP.5 percent (a 35 percent income tax rate plus a 10 percent resident surcharge). export subsidies.5 percent (a 25 percent income tax rate plus a 10 percent resident surcharge). PROPERTY RIGHTS — 70% Private property is secure. are modest. L L L L L L L L L L 50 100 INVESTMENT FREEDOM — 70% The Foreign Investment Promotion Act of November 1998 and other reforms substantially opened South Korea’s economy to foreign investment. compared to the world average of 48 days. The regulatory process has improved over the years. 240 2007 Index of Economic Freedom . FREEDOM FROM GOVERNMENT — 81. FREEDOM FROM CORRUPTION — 50% Corruption is perceived as present. Consequently. In the most recent year. and expropriation is highly unlikely. pharmaceuticals and medical services. The post office network offers some banking services and personal insurance products and is a major participant in both sectors. In the most recent year. and dismissing a redundant employee is relatively costly.7% MONETARY FREEDOM — 79% Inflation in South Korea is moderate. Obtaining a business license is simple. Regulations related to increasing or contracting the number of work hours are not flexible. Supervision and transparency remain insufficient. LABOR FREEDOM — 57. Prohibitive tariffs. import restrictions. overall tax revenue as a percentage of GDP was 24. and close a business is protected by the national regulatory environment. and the government received 0. an additional 20 percent is deducted from South Korea’s trade freedom score to account for these non-tariff barriers. and National Federation of Fisheries Co-operatives. and foreign insurers are prominent. = world average BUSINESS FREEDOM — 83. operate.7 0 ucts.

Property rights cannot be guaranteed because the courts are heavily influenced by the government and reportedly favor Kuwaiti nationals over foreigners. fertilizers How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. clothing 241 . and overall tax revenue relative to GDP is not high. according to our 2007 assessment.1 billion (2005 estimate) Exports: $33. Imports: $18. an Arab constitutional monarchy that gained its independence from Britain in 1961. construction materials. Former Prime Minister Sabah al-Ahmad al-Jabr al-Sabah was chosen as amir in January 2006 and remains committed to cautious economic reforms. Oil accounts for nearly 50 percent of GDP and 95 percent of export revenues.KUWAIT Rank: 57 Regional Rank: 5 of 17 K uwait’s economy is 63. though less so than in many other developing nations.5 billion Primarily oil and refined products.S.5 billion Primarily food.4 million Bilateral: $2 million (0% from the U.1 percentage points higher than last year. and monetary freedom. Low inflation boosts its monetary freedom score. Government spending is relatively high. Corruption is a problem. growth $19. Kuwait is ranked 5th out of 17 countries in the Middle East/North Africa region. comp.9% 5-yr.6 @ @ @@ @ @ @@ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @@ @ @ @ @ @ @ 60 40 20 0 1995 2007 QUICK FACTS Population: 2. which makes it the world’s 57th freest economy. labor freedom. but he faces opposition from Islamist and populist members of parliament. and its overall score is much higher than the regional average.7 billion 6.5 million GDP (PPP): $47.7% free 100 80 @ @ Mideast/North Africa Average = 57. BACKGROUND: Kuwait. Kuwait scores highly in fiscal freedom. The Al-Sabah dynasty has used state-owned oil revenues to build a modern infrastructure and cradle-to-grave welfare system for Kuwait’s small population. Its overall score is 1.2% FDI (net inflow): $1. Economic freedom is weak in several areas.org/index. The economy is 63. ann. including freedom from government.9 billion Official Development Assistance: Multilateral: $0. property rights.) External Debt: $16.7 percent free. is endowed with billions of barrels of oil reserves—roughly 10 percent of the world’s oil supply.384 per capita Unemployment: 3. vehicles and parts. and a significant amount of revenue is received from stateowned businesses. There is no income tax.4% (2003 Kuwaiti nationals) Inflation (CPI): 1. partially reflecting new methodological detail.2% growth in 2004 5. and freedom from corruption.2 World Average = 60. Kuwait is a major energy producer. The labor market is fairly flexible. but corporate tax rates on foreign businesses can be high.

and housing projects and urban development. government spending equaled 35. For example. TRADE FREEDOM — 72. Foreign investors may own 100 percent of investments in infrastructure projects such as water. In the most recent year. and sea freight. inefficient customs implementation.2 percent of GDP. In the most recent year. FREEDOM FROM CORRUPTION — 47% Corruption is perceived as significant. waste water treatment. and weak enforcement of intellectual property rights all add to the cost of trade. air. but strict restrictions still apply. hotels. an additional 20 percent is deducted from Kuwait’s trade freedom score to account for these non-tariff barriers.7% The labor market operates under flexible employment regulations that can enhance employment and productivity growth.9% Starting a business takes an average of 35 days. L L L L L L L L L L 50 100 INVESTMENT FREEDOM — 50% Kuwait is open to some types of foreign investment. and entertainment. The National Assembly recently rejected a proposal to cut the corporate tax rate to 15 percent. Seven commercial banks. MONETARY FREEDOM — 78.6 percent of its total revenues from state-owned enterprises and government ownership of property. Kuwait also has three government-owned specialized banks that provide medium. but other proposals to reform the tax code are still being considered. or communications. averaging 3.2% Kuwait’s weighted average tariff rate was 3. 100 = most free.2% Total government expenditures in Kuwait.KUWAIT’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 67.2 99. but dismissing a redundant employee can be costly.7 0 additional 10 percent is deducted from Kuwait’s monetary freedom score to account for these policies. Kuwait still restricts foreign investment in the upstream petroleum sector. and renewal of their appointments is subject to government approval.and long-term financing. transactions. LABOR FREEDOM — 81. operate. acquired after the 1982 stock market crash. The overall freedom to start. but the amir appoints all judges. an 242 2007 Index of Economic Freedom . or repatriation of profits. Different labor codes define working conditions in the public and private sectors. restrictive and burdensome regulations and standards. Capital markets are relatively well developed. Kuwait ranks 45th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. = world average BUSINESS FREEDOM — 67. and transportation. but maintains its intent to divest these assets. information technology and software development.8 50 50 50 47 81. Trials are lengthy. are high. compared to the world average of 48 days. Foreign residents involved in legal disputes with citizens frequently claim that the courts demonstrate a bias in favor of citizens.9 72.8% Inflation in Kuwait is moderate. The government has permitted foreign banks to open branches under 2004 banking legislation. FINANCIAL FREEDOM — 50% Kuwait has a well-developed financial system by regional standards. import bans. including telecommunications.9 39. Prohibitive tariffs. transfers. hospitals and pharmaceuticals. insurance companies. but there is one in the public sector. Entrepreneurship should be easier for maximum job creation. Relatively moderate prices explain most of the monetary freedom score. subject to approval. The labor force dominates Kuwait’s public sector.9 percent in 2002. Residents and non-residents may hold foreign exchange accounts. and stock market trading is vigorous. including consumption and transfer payments. The non-salary cost of employing a worker is moderate. FISCAL FREEDOM — 99. but there are significant restrictions. and close a business is relatively well protected by the national regulatory environment. which can be as high as 55 percent. Bureaucracy and lack of transparency are persistent problems. Obtaining a business license and closing a business can be relatively simple.9% Kuwait does not levy a tax on individual income or domestic business income. and there are no restrictions or controls on payments. land. Foreign-owned firms and joint ventures are the only businesses subject to corporate income tax. investment and exchange companies. power. PROPERTY RIGHTS — 50% The constitution provides for an independent judiciary. overall tax revenue (mainly from customs duties and taxes on transfers of property) was 1. including one operating on Islamic banking principles. The government provides some subsidies and controls prices through state-owned utilities and enterprises. there is no minimum wage in the private sector. were operating in 2005. service market access barriers. Foreign investors are permitted to own 100 percent of Kuwaiti banks. Consequently. The majority of the judges are non-citizens.1 percent between 2003 and 2005. FREEDOM FROM GOVERNMENT — 39.2 78. Consequently. The government retains stakes in a number of these commercial banks. ports. tourism. and the government received 95.6 percent of GDP.

The country is landlocked. Its overall score is 3 percentage points lower than last year. The top income and corporate tax rates are low. now the prime minister. uranium. with underdeveloped agricultural and industrial sectors. partially reflecting new methodological detail.4% Inflation (CPI): 4. The Kyrgyz Republic’s investment freedom.9 percent free.0% growth in 2004 4.S. not so much from outright restrictions as from bureaucratic incompetence and opaque regulatory enforcement. hydropower.S. gold. The Kyrgyz Republic is ranked 12th out of 30 countries in the Asia–Pacific region.R.9% 5-yr. The government has made significant progress in market reforms.1 billion Primarily oil and gas. shoes Imports: $1. The weak rule of law allows for significant corruption and insecure property rights. and has had difficulty attracting significant foreign investment. property rights. machinery and equipment. but political turmoil is worsening. Fiscal freedom and labor freedom in the Kyrgyz Republic score highly.org/index. despite some remaining restrictions. The popular.1 million Primarily cotton. ann. the implementation of a new labor code has helped to tailor employment to free-market conditions. comp. but the Kyrgyz Republic remains saddled with a large external debt and heavy dependence on foreign aid.S.1% FDI (net inflow): $250. The labor system is very flexible. trade freedom. violent protests over fraudulent parliamentary elections brought Kurmanbek Bakiyev to power.) External Debt: $2. machinery. mercury.1 million GDP (PPP): $9. and its overall score is equal to the regional average.3 million Official Development Assistance: Multilateral: $149 million Bilateral: $147 million (27% from the U.6 20 0 1995 2007 QUICK FACTS Population: 5. while monetary freedom. In March 2005. How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. The economy is 59. although the government imposes other taxes as well. according to our 2007 assessment. meat. autocratic President Askar Akayev ruled the nation from 1990 until 2005.1 World Average = 60. growth $1. natural gas. tobacco. including privatization and trade liberalization. His presidency was cemented by a June 2005 election and a power-sharing agreement with rival Feliks Kulov. Foreign investment in virtually all sectors faces hurdles.KYRGYZ REPUBLIC Rank: 79 Regional Rank: 12 of 30 T he Kyrgyz Republic’s economy is 59. BACKGROUND: The Kyrgyz Republic was once part of the U. and freedom from government somewhat less highly. which makes it the world’s 79th freest economy. wool.9 billion 7. and freedom from corruption are weak. Government expenditure is also moderate.935 per capita Unemployment: 10.9% free 100 80 @ @ @ @@ @@ @@ @ @ @ @ @ @ @ @@ @ @ @ @ @@ @@ @ @ @@ @ @ @ @@ @ 60 40 Asia Average = 59.1 billion Exports: $942. GDP growth in the past two years has been strong. food 243 . chemicals.

= world average BUSINESS FREEDOM — 61. including electricity. but most capital transactions must be registered with the relevant government authority or are subject to controls. The Kyrgyz Republic ranks 130th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005.4% The labor market operates under relatively flexible employment regulations that could be improved to enhance employment and productivity growth.4 95.4 0 the Kyrgyz Republic’s monetary freedom score to account for these policies. Foreign corporations may not purchase land. Individual investors have become involved in disputes over licensing. averaging 4. FINANCIAL FREEDOM — 50% The Kyrgyz Republic’s financial system is improving. FREEDOM FROM CORRUPTION — 23% Corruption is perceived as widespread. Other taxes include a value-added tax (VAT) and a land tax. and close a business is only partially protected by the national regulatory environment. TRADE FREEDOM — 71. MONETARY FREEDOM — 77. and energy. Corruption is a serious problem. Residents and non-residents may hold foreign exchange accounts. and a customs process that is inefficiently implemented and corrupt all add to the cost of trade. restrictive licensing and sanitary and phytosanitary rules.2 percent between 2003 and 2005. government spending equaled 27. Government officials may not own or control over 5 percent of any bank. Capital markets are limited and centered on the small stock exchange. including consumption and transfer payments.3 percent in 2003. Eleven banks have foreign participation.4 71. The labor code reform adopted in 2004 has been recognized as a key step toward increasing labor market flexibility. are moderate. agriculture.4% The Kyrgyz Republic’s weighted average tariff rate was 4. telecommunications. Contracts are not fully enforced. overall tax revenue as a percentage of GDP was 23. L L L L L L L L L L 50 100 INVESTMENT FREEDOM — 40% The Kyrgyz Republic has opened most of its economy to foreign investment. and permits investors to bid on privatized firms.3% Total government expenditures in the Kyrgyz Republic. The non-salary cost of employing a worker is high. an additional 5 percent is deducted from 244 2007 Index of Economic Freedom . and contracts are not enforced effectively. Consequently. and a large number of credit unions. LABOR FREEDOM — 74. but the government regulates or influences prices through state-owned industries.6 percent of GDP. operate. and enforcement of contracts. Consequently. In the most recent year. has adopted guarantees against expropriation or nationalization. The nominally independent central bank has improved supervision and established minimum capital requirements for banks. Foreign-controlled banks account for about half of banking assets. down from 20 percent. 100 = most free. FREEDOM FROM GOVERNMENT — 76.9 percent of its total revenues from state-owned enterprises and government ownership of property. Relatively moderate and unstable prices explain most of the monetary freedom score. Licensing and approval procedures are not transparent.KYRGYZ REPUBLIC’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 61.1% Inflation in the Kyrgyz Republic is moderate. Most price controls and subsidies have been eliminated. registration.4% Starting a business takes an average of 21 days. Obtaining a business license is not always easy. Lack of transparency and inconsistent application of commercial codes plague the business environment. Although the state dominates the insurance sector.1 percent. burdensome regulations. an additional 20 percent is deducted from the Kyrgyz Republic’s trade freedom score to account for these non-tariff barriers. Import taxes. water. There are 66 microcredit institutions that provide most of the credit used by small and medium enterprises.1% The Kyrgyz Republic implemented tax reductions in 2006. Both the income tax rate and the corporate tax rate are a flat 10 percent. and the government received 17. The overall freedom to start. compared to the world average of 48 days. several companies provide private insurance services. including two fully foreign-owned banks.1 76. all but three of them private. and closing a business can be difficult. but dismissing a redundant employee is not difficult. but it remains underdeveloped. There are no limits on foreign ownership of banks and microcredit institutions.3 77. PROPERTY RIGHTS — 30% The legal system does not protect private property sufficiently. In the most recent year. There are no restrictions on payments and transfers.1 40 50 30 23 74. FISCAL FREEDOM — 95. There are 18 commercial banks and a settlement-saving company.

LAOS Rank: 140 Regional Rank: 26 of 30 T he Laotian economy is 49. financial freedom. which makes it the world’s 140th freest economy.3 billion 6. Laos is ranked 26th out of 30 countries in the Asia–Pacific region. The current Communist government came to power in 1975 and immediately imposed a rigid socialist economic program.1 World Average = 60.5% FDI (net inflow): $17 million (gross) Official Development Assistance: Multilateral: $116 million Bilateral: $182 million (2% from the U.1 percent free. vehicles. Government spending is also fairly low. comp. As an avowedly Communist nation. BACKGROUND: Laos is one of the world’s few remaining Communist nations but has slowly been adopting some market reforms. The average tariff rate is high.1 billion Exports: $361. investment freedom. Business regulations hinder entrepreneurship.954 per capita Unemployment: 2. and there are substantial non-tariff barriers.4 percentage points higher than last year.0 million Primarily garments. As a final affront to Communist orthodoxy. but overall tax revenue is relatively small as a percentage of GDP. Business freedom. and its overall score is much lower than the regional average. and enforcement is in the hands of an opaque bureaucracy. tin Imports: $506. and corruption is rampant. Laos could improve in most areas of economic freedom. electricity.) External Debt: $2. Income and corporate tax rates are high. The borders of modern Laos were set by a treaty between France and Thailand in 1907. according to our 2007 assessment. and the government does not receive a large amount of its income from state-owned businesses.0% 5-yr. ann. Laos has experienced high economic growth since 1988 but continues to be hampered by a poor national infrastructure.0 million Primarily machinery and equipment. consumer goods How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. property rights. 245 . The economy is 49. coffee. Its overall score is 2.S.4% (2005 estimate) Inflation (CPI): 10. Change began in 1986 with the loosening of restrictions on private enterprise. and freedom from corruption all receive low scores. though the Laotian monarchy was established five centuries earlier.org/index. Laos scores well in freedom from government and fiscal freedom. Rule of law does not operate independently of political influence.4% growth in 2004 6. Laos has recently begun formal negotiations to join the World Trade Organization. partially reflecting new methodological detail.1% free 100 80 @ @ @ @ @ @ @ @ @ 60 @ @ @@ @@ @@ @ @ @@ @ @ @ @ @ @ @ 40 @ @ @ @ @ @ @ @ @ @ 20 Asia Average = 59. fuel.6 0 1995 2007 QUICK FACTS Population: 5.8 million GDP (PPP): $11. wood products. growth $1.

and the potential for deterioration in security. that their operations will be free from government interference. but dismissing a redundant employee can be both costly and difficult. MONETARY FREEDOM — 71. predominantly from state-owned banks to state-owned enterprises. Corruption is a serious problem. There are no formal laws governing the pricing of products or services. are low. FREEDOM FROM CORRUPTION — 33% Corruption is perceived as significant. but the government influences many prices through state-owned 246 2007 Index of Economic Freedom . but closing a business can be very difficult. There are 10 private and foreign banks. LABOR FREEDOM — 53. Some payments and transfers face quantitative restrictions. Increasing or modifying the number of work hours can be burdensome. since the domestic arbitration authority lacks the ability to enforce its decisions.6 86.3 71. and the top corporate tax rate is 35 percent.1 percent in 2004. Consequently.3% Inflation in Laos is high.8 percent between 2003 and 2005. compared to the world average of 48 days. an additional 10 percent is deducted from Laos’s monetary freedom score to account for these policies. Supervision and regulation of financial services are weak. that their property will not be confiscated without compensation. Three state-owned banks dominate the banking sector.5% The labor market operates under restrictive employment regulations that hinder employment and productivity growth. Lack of transparency and inconsistent interpretation of commercial laws are still problems for investors. but remaining government enterprises take a large share of the non-performing loans. The government extensively directs credit. FISCAL FREEDOM — 80. L L L L L 100 100 = most free. and close a business is restricted by the national regulatory environment. import bans. FREEDOM FROM GOVERNMENT — 86.8 80. Obtaining a business license is relatively simple.LAOS’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 51 55. but a corrupt customs process. prohibitive tariffs. overall tax revenue as a percentage of GDP was 9. Other taxes include a vehicle tax and a tax on insurance contracts. and the government received 15.3% Total government expenditures in Laos. Capital markets are primitive. Laos ranks 77th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. = world average BUSINESS FREEDOM — 51% Starting a business takes an average of 163 days. Entrepreneurship should be easier for maximum job creation. Laos has been making progress on reforming state-owned enterprises. averaging 8.6% Laos has high tax rates. import taxes. TRADE FREEDOM — 55. The government raised the official minimum wage in 2005. Relatively high and unstable prices explain most of the monetary freedom score. In the most recent year. The banking sector is hindered by non-performing loans. L L L L L 50 INVESTMENT FREEDOM — 30% Laos’s foreign investment law guarantees foreign investors that their investments will be protected.5 0 enterprises and utilities and sets the price of fuel products. The overall freedom to start. The banking sector is the most important part of the financial system.3 30 20 10 33 53. Foreign investors are generally advised to seek arbitration outside of Laos. FINANCIAL FREEDOM — 20% The Laotian financial system is small and subject to heavy government involvement. government spending equaled 19 percent of GDP. However. The top income tax rate is 40 percent. PROPERTY RIGHTS — 10% The judiciary is not independent. subject to certain restrictions and government approval. The non-salary cost of employing a worker is low. All capital transactions require central bank approval.8 percent of its total revenues from state-owned enterprises and government ownership of property. and judges can be bribed. The government has made progress in liberalizing the trade regime and improving customs procedures. import restrictions. an additional 20 percent is deducted from Laos’s trade freedom score to account for these non-tariff barriers.6 percent.8% Laos’s weighted average tariff rate was 12. Consequently. foreign investment is threatened by the country’s macroeconomic instability. and that they have the right to lease land and repatriate earnings. including consumption and transfer payments. but their activities are limited. and weak enforcement of intellectual property rights still add to the cost of trade. Microfinance has a small presence. operate. In the most recent year. particularly the tendency for the currency to weaken. accounting for about 70 percent of assets. Both residents and non-residents may hold foreign exchange accounts.

but this is due more to slow jurisprudence than to corruption. and financial freedom. Its economy.5 World Average = 60.0 billion 8.S. which would bypass Latvia and other Baltic states.5% growth in 2004 7.653 per capita Unemployment: 8. fiscal freedom. However. political leaders have objected strongly to the construction of a North European Gas Pipeline. electronic manufacturing. is developing quickly.3 million GDP (PPP): $27. machinery and equipment. including business freedom.) External Debt: $12.2% FDI (net inflow): $538 million Official Development Assistance: Multilateral: $135 million Bilateral: $29 million (11% from the U. the average tariff is low. L The economy is 68. being planned by Germany and Russia. In accordance with the European Union standard. investment freedom.6 20 0 1995 2007 QUICK FACTS Population: 2. according to our 2007 assessment. and business regulation is relatively light. Total government spending is high.0 billion Primarily wood and wood products. Investment in Latvia is welcome. banking.org/index. 60 40 Europe Average = 67. with a few restrictions. which makes it the world’s 41st freest economy. Latvia can improve its freedom from government. trade freedom. BACKGROUND: Latvia regained its independence when the Soviet Union collapsed in 1991. metals.2% free 100 80 @@ @ @@ @@ @ @ @@ @ @ @ @ @ @ @@ @ @ @ @ @ @ @ @ @ @ @@ @ @@ @ @ Latvia scores well in most areas of economic freedom. textiles. Top income and corporate tax rates are low. 247 . property rights.5% Inflation (CPI): 6. food Imports: $8. and freedom from corruption. fuels.2 percent free.LATVIA Rank: 41 Regional Rank: 22 of 41 atvia’s economy is 68. The judiciary is somewhat inefficient. comp. Latvia is ranked 22nd out of 41 countries in the European region. and dairy. and its overall score is equal to the regional average. growth $11. Latvia’s May 2005 admission to the European Exchange Rate Mechanism has further aligned its economy with that of the euro zone. Its overall score is 1 percentage point lower than last year. with a significant backlog of cases.7% 5-yr. ann. including financial and transportation services.7 billion Exports: $6. and GDP has grown rapidly as a result. although not as high as in other EU states. partially reflecting new methodological detail. chemicals. The financial sector is modern and subject to few intrusive regulations.2 billion Primarily machinery and equipment. and it joined the EU in 2004. vehicles How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage.

The top 10 banks accounted for about 80 percent of banking assets. The government also regulates rents.1% Inflation in Latvia is relatively high. 10 percent is deducted from Latvia’s monetary freedom score to account for these policies.3 69. As a participant in the EU’s Common Agricultural Policy. or raffles and gambling interests.7 percent in 2005. and the corporate tax rate is 15 percent. Various non-tariff barriers are reflected in EU and Latvian government policy. There are no restrictions or controls on payments. FISCAL FREEDOM — 89. LABOR FREEDOM — 64. the government subsidizes agricultural production. and foreigners receive equal treatment. are high. including agricultural and manufacturing subsidies. 100 = most free. Foreign banks receive domestic treatment. The income tax rate is a flat 25 percent. The government owns one bank that accounts for over 4 percent of bank assets. The common EU weighted average tariff rate was 1. Con- 248 2007 Index of Economic Freedom .3% Latvia has a moderate income tax rate and a low corporate tax rate. Obtaining a business license is relatively simple. and focused on minimum accounting and financial standards. Foreign investors may own land for agricultural or forestry purposes but only subject to prerequisites. Both residents and non-residents may hold foreign exchange accounts. = world average BUSINESS FREEDOM — 76. There were 23 commercial banks operating in 2004.2 percent of its total revenues from state-owned enterprises and government ownership of property. transactions. Relatively unstable prices explain most of the monetary freedom score. Supervision is prudent. The government has no screening process. MONETARY FREEDOM — 74. PROPERTY RIGHTS — 50% Latvia’s constitution provides for an independent judiciary. FREEDOM FROM CORRUPTION — 42% Corruption is perceived as significant.8% Starting a business takes an average of 16 days. Entrepreneurship is easy and encourages maximum job creation. Bureaucratic obstacles include poor availability of information on government procedures and the insufficient professionalism of many civil servants. or repatriation of profits. transfers. FREEDOM FROM GOVERNMENT — 69. TRADE FREEDOM — 76. an additional 20 percent is deducted from Latvia’s trade freedom score to account for these non-tariff barriers. Some judges are not well trained. compared to the world average of 48 days.1 0 sequently. and close a business is relatively well protected by the national regulatory environment.1 70 70 50 42 64. and regulations are transparent. Capital markets are small. The insurance sector is small and was composed of about 20 companies in 2004. Consequently. There are rigid regulations on increasing or modifying the number of work hours.2 74.8 76. but closing a business can be difficult. and bank formation faces few barriers.1% The labor market operates under relatively flexible employment regulations that could be improved to enhance employment and productivity growth. and open foreign exchange positions. Latvia ranks 51st out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. Other taxes include a value-added tax (VAT) and a real estate tax. In the most recent year. The largest insurer is majority foreign-owned.5 percent. restrictions on exposure.9 percent of GDP. The overall freedom to start.3 percent between 2003 and 2005.6 89. minimum capital requirements. air transport.LATVIA’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 76. but the stock exchange is part of a regional network of exchanges that includes Nordic and most Baltic countries. government spending equaled 35. straightforward. distorting the prices of agricultural products. averaging 6. operate. and other market access restrictions. and energy prices and influences prices through state-owned enterprises. including consumption and transfer payments. overall tax revenue as a percentage of GDP was 27. transportation. In the most recent year. FINANCIAL FREEDOM — 70% Latvia has a modern financial sector with substantial foreign participation. but dismissing a redundant employee is costless.2% Total government expenditures in Latvia. utility rates. Approximately half of banking assets was controlled by foreign-owned banks. There are long delays in court hearings and enforcement of decisions. regulatory and licensing restrictions. L L L L L L L L L L 50 100 INVESTMENT FREEDOM — 70% Latvia welcomes foreign investment. The non-salary cost of employing a worker is high. which in practice is inefficient. Foreign investors may not hold controlling shares in companies involved in security services.6% Latvia’s trade policy is the same as those of other members of the European Union. and the government received 2.

2 billion Exports: $1. live animals.7 million Official Development Assistance: Multilateral: $146 million Bilateral: $153 million (19% from the U. Its overall score is 1. and labor freedom.) External Debt: $22. investment freedom. Prime Minister Fuad Siniora has pledged to carry out economic reforms. and its overall score is slightly higher than the regional average.6 @ @@ @ @ @@ @ @ @ @ @ @ @ @ @ @ @@ @ @@ @ @ @ @ @@ @ @ @@ @ @@ Lebanon’s economy has strong fiscal freedom.0% growth in 2004 3. construction minerals. comp. paper. clothing.3% free 100 80 @ @ Mideast/North Africa Average = 57. The labor market is highly flexible. financial freedom. medicinal products. BACKGROUND: Lebanon gained its independence from France in 1943 and developed one of the Middle East’s most advanced economies.5 million GDP (PPP): $20. according to our 2007 assessment.0% FDI (net inflow): $242.8 billion Primarily jewelry. which makes it the world’s 77th freest economy. with an array of private banks and services. consumer goods. 60 40 20 0 1995 2007 QUICK FACTS Population: 3. consumer goods. monetary freedom.LEBANON Rank: 77 Regional Rank: 9 of 17 ebanon’s economy is 60. partially reflecting new methodological detail. and the generally chaotic regulatory regime deters foreign capital. textile fabrics. As a trading and international banking center.2 World Average = 60. it was known as “the Switzerland of the Middle East” until the disastrous 1975–1990 civil war.7 billion 6.8% 5-yr.1 billion Primarily petroleum products.837 per capita Unemployment: 20% (2000 estimate) Inflation (CPI): 3. The top income and corporate tax rates are low. property rights. L The economy is 60. and inflation is very low. fruit. tobacco 249 How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. The financial sector is well developed for the region. growth $5. Lebanon’s huge $26 billion foreign debt will pose an obstacle to reconstruction as well. meat. . Intrusive bureaucracy makes closing a business difficult.org/index. and freedom from corruption are all areas in which Lebanon could improve. Lebanon is ranked 9th out of 17 countries in the Middle East/North Africa region. electric power machinery and switchgear.8 percentage points higher than last year.3 percent free. Business freedom. inorganic chemicals. but the Hezbollah-instigated conflict with Israel in 2006 will undoubtedly haunt the economy for years to come. tobacco.S. cars. Syria intervened with a stranglehold on Lebanese politics that continued until it was forced to withdraw in 2005 after being implicated in the February assassination of former Prime Minister Rafiq Hariri. and fair adjudication of property rights cannot be guaranteed because the courts are subject to singificant influence from the security services and the police. Corruption is rampant. textile fibers Imports: $9. ann.

There are no restrictions on payments and transfers. The non-salary cost of employing a worker can be high. Relatively low and stable prices explain most of the monetary freedom score. and banks. and dismissing a redundant employee is relatively costly. archaic legislation. The five largest commercial banks accounted for over 60 percent of total banking assets in 2004. and credit is allocated to all investors on market terms. There are more than 70 insurance firms. and an ineffectual judicial system are serious impediments to foreign investment.4% Lebanon’s weighted average tariff rate was 6.LEBANON’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 56. government spending equaled 34.5% Inflation in Lebanon is low. Red tape and corruption.9% Lebanon has low tax rates. Privatization has been stalled since 2000. media companies. and electricity. = world average BUSINESS FREEDOM — 56. All foreigners must obtain a license from the government to acquire real estate. recommending verdicts and sentences. operate. The top income tax rate is 20 percent. and close a business is restricted by the national regulatory environment.3% Total government expenditures in Lebanon. including consumption and transfer payments. Lebanon ranks 83rd out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. as does corruption. particularly commercial cases. particularly in real estate. FREEDOM FROM CORRUPTION — 31% FREEDOM FROM GOVERNMENT — 64.5 30 70 30 31 74. LABOR FREEDOM — 74.9 percent. insurance. compared to the world average of 48 days. money market instruments. L L L L L 50 L L L L L 100 100 = most free. averaging 1.3 percent in 2002. Trials. Bureaucracy and lack of transparency are persistent problems. MONETARY FREEDOM — 83. and derivatives. The overall freedom to start. an additional 20 percent is deducted from Lebanon’s trade freedom score to account for these non-tariff barriers. for example. and the government received 23. an additional 10 percent is deducted from Lebanon’s monetary freedom score to account for these policies.2 67. The government maintains import bans. quotas.4% The labor market operates under restrictive employment regulations that could be improved to enhance employment and productivity growth. and the top corporate tax rate is 15 percent.8 percent of its total revenues from state-owned enterprises and government ownership of property. Regulations on increasing or contracting the number of work hours are flexible.5 percent of GDP. Obtaining a business license is relatively simple. TRADE FREEDOM — 67.4 95. FINANCIAL FREEDOM — 70% Lebanon’s financial sector is one of the region’s most liberal and sophisticated. Non-performing loans were estimated to exceed 25 percent at the end of September 2004. pharmaceuticals. petroleum derivatives.3 83. but central bank approval is required to purchase treasury securities. and burdensome sanitary and phytosanitary regulations that add to the cost of trade. restrictive licensing rules. and some credit operations are prohibited. Financial regulations are transparent. although with some restrictions. PROPERTY RIGHTS — 30% FISCAL FREEDOM — 95. In the most recent year.4 0 INVESTMENT FREEDOM — 30% Lebanon welcomes foreign investment. but closing a business is very difficult. The government-appointed prosecuting magistrate exerts considerable influence over judges by. and regulations have been passed to tighten supervision and establish minimum capital requirements to address a problem with small. Residents and non-residents may hold foreign exchange accounts. are moderate. There are few restrictions on domestic bank formation and few barriers to foreign banks.1 percent between 2003 and 2005. In the most recent year. undercapitalized firms that charge low premiums but rarely pay claims. Consequently. tax revenue as a percentage of GDP was 16. Privatesector borrowers complain about being crowded out of the market because much bank credit goes to the government. Consequently. Entrepreneurship should be easier for maximum job creation.9 64. The government influences prices through state-owned enterprises and subsidies and controls the prices of bread. Corruption is perceived as significant. The judiciary is significantly influenced by the security services and the police. 250 2007 Index of Economic Freedom . Other taxes include a value-added tax (VAT) and a capital gains tax. drag for years. arbitrary licensing decisions.2% Starting a business takes an average of 46 days.

The labor market is flexible. Regulation is oppressive. petroleum products How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. live animals Imports: $1. food. Inflation is moderate. The country’s average tariff rate is high. Lesotho faces substantial economic challenges that are common among poor African countries. which makes it the world’s 118th freest economy. 251 . but expiration of the MultiFiber Arrangement will hurt the textile sector. primarily miners that work in South Africa.8 million GDP (PPP): $4. investment freedom. Property rights are not secured by an independent judiciary. machinery. Its trade freedom. and over half of all households depend on agriculture or migrant labor.LESOTHO Rank: 118 Regional Rank: 23 of 40 esotho’s economy is 54. L The economy is 54.619 per capita Unemployment: 30% (2002 estimate) Inflation (CPI): 5. The government supports privatization and an improved business environment. road vehicles. partially reflecting new methodological detail. according to our 2007 assessment. and freedom from corruption are all weak. Prime Minister Pakalitha Mosisili and his party control a significant parliamentary majority.0 million Exports: $771. vehicles. wool. and corruption is a problem. and labor freedom.2% FDI (net inflow): $51.2 million Primarily clothing. and non-tariff barriers to trade are significant. BACKGROUND: Lesotho sells water and electricity to South Africa. ann.S. and its overall score is equal to the regional average.4 billion Primarily food. freedom from government. although the government intervenes in the price structure of certain goods.) External Debt: $764. footwear. property rights. monetary freedom. Lesotho is ranked 23rd out of 40 countries in the sub-Saharan Africa region.8 percentage points lower than last year. Its overall score is 2.6 @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @@ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ Lesotho does not rank strongly in any category. Government spending is also far too high. comp. medicines.0% growth in 2004 2.org/index.7 million Official Development Assistance: Multilateral: $79 million Bilateral: $36 million (11 % from the U. mohair.7 billion 2. growth $2. and business operations are significantly impeded by red tape. HIV/AIDS is a serious concern.7 World Average = 60.6% 5-yr. Lesotho has become the largest African exporter of garments to the United States. King Letsie III is head of state but has no executive authority.1 percent free. 60 40 20 0 1995 2007 QUICK FACTS Population: 1.1% free 100 80 Sub-Saharan Africa Average = 54. but it does enjoy moderate levels of business freedom. Under the African Growth and Opportunity Act. building materials. High top income tax and top corporate tax rates are supplemented by additional taxes.

The judiciary is independent and has generally been allowed to carry out its role effectively. and dismissing a redundant employee is relatively costless. Although many prices are freely determined in the market. Burdensome regulations.7% Inflation in Lesotho is moderate. FISCAL FREEDOM — 79. Some payments and transfers are subject to prior government approval and limitations. Both obtaining a business license and closing a business are relatively simple. the largest of which is 50 percent governmentowned. Entrepreneurship should be easier for maximum job creation. Lesotho’s tradition of direct government involvement has limited private-sector development in the economy. Many capital transactions face restrictions or quantitative limits. and the program for privatizing agricultural parastatals has made little headway. three of which are foreign-owned. However. The non-salary cost of employing a worker is low. The top income tax rate is 35 percent. the overall freedom to start. the government has vowed to increase labor market flexibility. Consequently.4 percent between 2003 and 2005. Financial supervision remains insufficient. 252 2007 Index of Economic Freedom .LESOTHO’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 68. and import restrictions add to the cost of trade. The banking sector has four commercial banks. The central bank established a Rural Credit Guarantee Fund in 2003 to encourage rural lending and established the Lesotho PostBank in 2005 to provide banking services to the poor and in rural areas. = world average BUSINESS FREEDOM — 68.5 53. Residents and nonresidents no longer require government permission to hold foreign exchange accounts.7 76.4% Lesotho’s weighted average tariff rate was 17. Non-performing loans are a legacy problem linked to historical exploitation of Lesotho Bank by politicians and lending to state-owned enterprises.2 44.2% Starting a business takes an average of 73 days. Capital markets are marginal.7% Total government expenditures in Lesotho. Other taxes include a value-added tax (VAT) and a tax on dividends. FINANCIAL FREEDOM — 50% Lesotho’s small. Relatively moderate and unstable prices explain most of the monetary freedom score.4 79. and expropriation is unlikely.8 percent in 2001. Although the regulatory framework generally lacks transparency. an additional 20 percent is deducted from Lesotho’s trade freedom score to account for these non-tariff barriers. In recent years.9% MONETARY FREEDOM — 76. draconian internal security legislation gives considerable power to the police and restricts the right of assembly and some forms of industrial action. The government privatized the Lesotho Bank in 1999 but still owns two development banks. There are four insurance companies. an additional 10 perThe labor market operates under relatively flexible employment regulations that could be improved to enhance employment and productivity growth. FREEDOM FROM GOVERNMENT — 53. and close a business is relatively well protected by the national regulatory environment. government spending equaled 43. Consequently. underdeveloped financial system is closely tied to South Africa through the Common Monetary Area that also includes Namibia and Swaziland. 100 = most free. FREEDOM FROM CORRUPTION — 34% Corruption is perceived as significant. operate. Local unrest often leads to the destruction of property owned by foreign businesses. overall tax revenue as a percentage of GDP was 35 percent.9 0 cent is deducted from Lesotho’s monetary freedom score to account for these policies. PROPERTY RIGHTS — 40% Private property is guaranteed.7 30 50 40 34 64.1 percent of GDP. especially in agriculture. and real estate purchases abroad require government approval. In the most recent year. including consumption and transfer payments. are high. non-transparent and arbitrary import licensing. the government influences prices through stateowned enterprises and utilities. averaging 4.5% Lesotho has high tax rates. and the top corporate tax rate for all companies other than manufacturing is 25 percent (a reduced rate of 10 percent is applicable to all manufacturing companies). import bans. political instability and a lack of transparency discourage foreign investment. L L L L L L L L L L 50 100 INVESTMENT FREEDOM — 30% Foreign investors have participated in the country’s privatization program without discrimination. but quantitative restrictions apply. even during the years of military rule. TRADE FREEDOM — 44. LABOR FREEDOM — 64. compared to the world average of 48 days. However. and the government received 9 percent of its total revenues from state-owned enterprises and government ownership of property. Lesotho ranks 70th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. In the most recent year.

freedom from government.S. semi-finished goods. transport equipment.4% from the U. 60 40 @ @ @ @ @ @ @ @ @ @ @ @ 20 0 1995 2007 QUICK FACTS Population: 5. investment freedom. property rights. which makes it the world’s 155th freest economy. Government tax revenue relative to GDP is low. or closing a business is difficult and heavily regulated by an avowedly socialist state. Oil dominates the economy. growth $11. which also manages the labor market inflexibly. financial freedom. The top income and corporate tax rates are moderate.5 percent free. lifted most of its sanctions in 2004 after Libyan leader Muammar Qadhafi abandoned his efforts to build weapons of mass destruction. and freedom from corruption are all serious problems. labor freedom. but various surtaxes can be extremely high.S. food. comp. Libya has suffered from more than 30 years of socialist economic policies and international sanctions due to its role in the 1989 Lockerbie bombing.LIBYA Rank: 155 Regional Rank: 17 of 17 ibya’s economy is 34. Its overall score is 0. and the U. operating.9 billion Primarily crude oil. or third most repressed. Libya has extremely low freedom in many areas. Forming. refined petroleum products. natural gas Imports: $10.5% free 100 80 @ @ Mideast/North Africa Average = 57. L The economy is 34.2 percentage point higher than last year. partially reflecting new methodological detail.5 billion Primarily machinery. How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. according to our 2007 assessment.5% 5-yr.6% growth in 2004 4. The United Nations lifted its sanctions in 2003 after Libya agreed to pay compensation to victims’ families. Inflation in Libya is also low. Libya is ranked 17th out of 17 countries in the Middle East/North Africa region.) External Debt: $4. BACKGROUND: Oil revenues generate almost all export earnings in Libya’s state-dominated economy.2 World Average = 60.400 per capita (2005 estimate) Unemployment: 30% (2004 estimate) Inflation (CPI): –2. though price controls distort the market. ann.7 million GDP (PPP): $65. perhaps because of the country’s oil revenues.1 million Official Development Assistance: Multilateral: $7 million Bilateral: $11 million (0.3 billion (2005 estimate) Exports: $17.org/index.2% FDI (net inflow): $69. Fairly high tariff rates and non-tariff barriers impede trade and foreign investment. Despite one of Africa’s highest per capita incomes.6 @@ @ @ @@ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ Libya’s fiscal freedom and monetary freedom are its strengths.8 billion (2005 estimate) 4. Corruption is rampant. and fair adjudication of property rights is unlikely. Business freedom. and its overall score is much lower than the regional average. consumer products 253 . trade freedom. The Department of State removed Libya from its list of state sponsors of terrorism in 2006. and the government dominates the oil sector.

and close a business is significantly restricted by the national regulatory environment. an additional 20 percent is deducted from Libya’s trade freedom score to account for these nontariff barriers. Transparency and supervision of state banks is very weak.9 percent between 2003 and 2005. but results are not yet evident. A one-stop window has been established to simplify the business application process.9 30 20 10 25 20 0 deducted from Libya’s monetary freedom score to account for these policies.5% Total government expenditures in Libya. and the first private bank since 1969 opened in 1996. Stable prices explain most of the monetary freedom score. An active central bank and eight other government-owned financial institutions dominate the sector. are subject to controls.2 percent in 2002. Unemployment is a major policy issue as the pace of privatization gradually increases. although the private sector has been developing in recent years. In the most recent year. although the government has mentioned it as a goal. and the government may re-nationalize the little private property that is granted. burdensome and non-transparent regulation. Import restrictions. Privatization programs have been broadened. although the government adopted a law to establish a stock market in June 2006. The government has partially liberalized rules on foreign investment. A jihad tax is also applied to all taxable income.LIBYA’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 20 29. Regulations make employing and dismissing a worker difficult and costly. averaging 0. The freedom to start.4 percent. operate. The top corporate tax rate is 40 percent. especially to foreign companies. TRADE FREEDOM — 29. Regulation is bureaucratic and antiquated. In the most recent year. whether permanent or temporary. There is little land ownership. an additional 15 percent is 254 2007 Index of Economic Freedom . Consequently. FREEDOM FROM GOVERNMENT — 23. = world average BUSINESS FREEDOM — 20% Libya still has a planned economy. LABOR FREEDOM — 20% The labor market operates under highly restrictive employment regulations that hinder employment and productivity growth. permitting it in limited sectors. other taxes (such as those on commercial and industrial profits) can raise the top rate to 90 percent.8 23. other payments require government approval or are subject to quantitative limits. FISCAL FREEDOM — 87. Most prices are determined by the government through price controls and state-owned enterprises and utilities. Repatriation and most capital transactions.9 percent of its total revenues from state-owned enterprises and government ownership of property. government spending equaled 44. The government nationalized all banks in 1970 and maintains tight control. and approval can now be obtained within 30 days. The government sets most wages because it employs about 70 percent of the labor force.9% Inflation in Libya is low.6 87. are very high. and customs corruption add to the cost of trade. and all lawyers must be members of the Secretariat of Justice. and three foreign banks had representative offices as of June 2006. including consumption and transfer payments. direct investment. There is no coherent plan to privatize state banks. Consequently. Libya has no value-added tax (VAT) or inheritance tax. credit operations. 100 = most free.2 percent of GDP. Private ownership of financial institutions was permitted in 1993. Payments for authorized imports are not restricted. The private practice of law is illegal. and the government received 92.8% Libya levies a top income tax rate of 15 percent on individual income from labor and any service or function. Both residents and non-residents may hold foreign currency accounts with prior approval. and real estate. FREEDOM FROM CORRUPTION — 25% Corruption is perceived as widespread. MONETARY FREEDOM — 78. For incomes over 200.000 Libyan dinars. PROPERTY RIGHTS — 10% The judiciary is not independent.6% Libya’s weighted average tariff rate was 25. government regulations are applied randomly and still significantly impede the creation of new businesses. L L L L L L L L L L 50 100 INVESTMENT FREEDOM — 30% Almost all foreign direct investment is in the hydrocarbons sector.5 78. including approval requirements. but the regulatory and bureaucratic environment remains complex. including transactions involving capital and money market instruments. Oil companies are subject to special provisions. There is no capital market. FINANCIAL FREEDOM — 20% Libya’s financial system is primitive and highly centralized. Libya ranks 117th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. Legislation passed in 2005 permits foreign banks to open branches. overall tax revenue as a percentage of GDP was 2. However.

wood. investment freedom. followed by membership in the European Union and NATO. growth $13. according to our 2007 assessment.org/index. partially reflecting new methodological detail.4 million GDP (PPP): $45.8% Inflation (CPI): 1.8 billion Primarily mineral products. and subject to few intrusive regulations. regionally integrated. and foreign capital is subject to the same rules as domestic capital.1% 5-yr. machinery and equipment. and the country won its independence. Labor restrictions are inflexible. In May 2006. and despite the fact that foreign investment is generally welcome.0% growth in 2004 7. 255 . chemicals. With more than 80 percent of its enterprises now privatized.LITHUANIA Rank: 22 Regional Rank: 14 of 41 ithuania’s economy is 72 percent free. Top income and corporate tax rates are low.) External Debt: $9.5 World Average = 60. complicated regulations are a deterrent. chemicals.107 per capita Unemployment: 6. including business freedom. clothing. Lithuania continues to navigate the transition from a command economy to a market economy successfully.0 billion 7.5 billion Exports: $11.3 billion Primarily mineral products. 60 40 Europe Average = 67. metals How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. Russian troops withdrew from Lithuania. textiles. fiscal freedom. Business regulation is simple. textiles. trade freedom. and financial freedom. which makes it the world’s 22nd freest economy. Lithuania could improve its labor freedom.2% FDI (net inflow): $510. The financial sector is advanced. Investment in Lithuania is welcome. monetary freedom. BACKGROUND: In 1993. Its overall score is 1 percentage point lower than last year.4 million Official Development Assistance: Multilateral: $219 million Bilateral: $43 million (12% from the U. L The economy is 72% free 100 80 @ @ @@ @ @ @@ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ Lithuania scores well in most areas of economic freedom. property rights. and its overall score is higher than the regional average. the four-party ruling coalition that had come to power in the October 2004 election collapsed following the decision of the Labor Party to withdraw its support. wood products. The judiciary has a significant backlog of cases because of slow jurisprudence. clothing. and freedom from corruption.S. Lithuania is ranked 14th out of 41 countries in the European region. transport equipment. machinery and equipment. ann. food Imports: $13.6 20 0 1995 2007 QUICK FACTS Population: 3. comp.

are moderate. and a road tax. The relatively sound business environment has encouraged entrepreneurial activities. FREEDOM FROM GOVERNMENT — 76. Credit is allocated on market terms. and close a business is protected by the national regulatory environment. overall tax revenue as a percentage of GDP was 19. Most commercial banks are foreign-owned. The stock exchange is part of a regional network of exchanges that includes Nordic and most Baltic countries.LITHUANIA’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 86. Complex regulations and procedures are continuing problems for investors. = world average BUSINESS FREEDOM — 86.6 81. and the enforcement of intellectual property rights is weak. operate. and foreign-owned banks accounted for over 90 percent of banking capital in 2004. Residents may hold foreign exchange accounts.7 percent in 2005. electricity rates.6 91 76. In the most recent year.2% Inflation in Lithuania is low. Restrictions on increasing or modifying the number of work hours are rigid.1 0 tural products. and some energy prices and influences prices through state-owned enterprises. FINANCIAL FREEDOM — 80% Lithuania’s financial system is advanced and tightly intertwined with those of its Scandinavian neighbors. and the corporate tax rate is 15 percent. The common EU weighted average tariff rate was 1. There are no controls or restrictions on repatriation of profits. as well as burdensome procurement rules. but dismissing a redundant employee is relatively costless. Activities involving increased danger to human life.6% Lithuania’s trade policy is the same as those of other members of the European Union. Consequently. Non-EU banks must be approved by the central bank. TRADE FREEDOM — 76. Restrictions on financial transactions are minimal under a universal banking model. regulatory and licensing restrictions. including strengthening its independence and streamlining proceedings to clear up the backlog of criminal cases. or payments. L L L L L L L L L L 50 100 INVESTMENT FREEDOM — 70% Foreign companies are accorded the same treatment as domestic firms. Investors still complain that judicial enforcement of contracts is weak. Privatization of the last remaining state-owned bank was completed in 2002.6% Total government expenditures in Lithuania. Other taxes include a value-added tax (VAT). a land tax. or trade in weapons require permission or a license. FREEDOM FROM CORRUPTION — 48% Corruption is perceived as significant. government spending equaled 31. including consumption and transfer payments.2 percent of GDP. manufacturing. 10 percent is deducted from Lithuania’s monetary freedom score to account for these policies. compared to the world average of 48 days.4% Starting a business takes an average of 26 days. The overall freedom to start. and there are limits on open foreign exchange positions by banks. All sectors of the economy are open to foreign investment. 100 = most free.2 70 80 50 48 60. Various nontariff barriers are reflected in EU and Lithuanian government policy. The government implements restrictive pharmaceutical and biotechnology regulations. The banking system is stable and regulated according to European Union standards.8 percent. Some capital transactions must be registered with the central bank.4 76. with the exception of the security and defense sectors. The three largest banks account for over 70 percent of banking assets. Relatively stable prices explain most of the monetary freedom score. LABOR FREEDOM — 60. and other market access restrictions.1% The labor market operates under restrictive employment regulations that hinder employment and productivity growth. the government subsidizes agricultural production. Capital markets are well developed but small. The income tax rate is a flat 27 percent (scheduled to be reduced to 24 percent effective January 2008). The government also regulates rents. The insurance sector is also dominated by foreign firms. MONETARY FREEDOM — 81. distorting the prices of agricul- 256 2007 Index of Economic Freedom . and the government received 2 percent of its total revenues from state-owned enterprises and government ownership of property. including agricultural and manufacturing subsidies. an additional 20 percent is deducted from Lithuania’s trade freedom score to account for these non-tariff barriers. FISCAL FREEDOM — 91% Lithuania has a moderate income tax rate and a low corporate tax rate. As a participant in the EU’s Common Agricultural Policy. In the most recent year. current transfers. health. averaging 2 percent between 2003 and 2005. environment. and closing a business is easy. Lithuania ranks 44th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. Consequently. PROPERTY RIGHTS — 50% Accession to the EU has played a major role in encouraging reforms in Lithuania’s judicial system. The non-salary cost of employing a worker can be very high. and the state held less than 1 percent of banking assets at the end of 2005. Obtaining a business license is relatively simple.

which makes it the world’s 8th freest economy.1% 5-yr.org/index.2% FDI (net inflow): –$2. Luxembourg is Europe’s principal center for mutual funds and a major force in the banking and insurance industries. comp. How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. growth $69.0 billion Official Development Assistance: Multilateral: None Bilateral: None External Debt: n/a Exports: $46. With a financial services industry that accounts for about one-third of GDP.5 World Average = 60. it evolved into a manufacturing and services economy. It possesses a skilled workforce and well-developed infrastructure.5% growth in 2004 4. metals.961 per capita Unemployment: 4. financial freedom. and its overall score is much higher than the regional average.6 20 0 1995 2007 QUICK FACTS Population: 0. although subject to government licensing in some sectors. Total government spending equals more than two-fifths of GDP but is still lower than that of some other EU member countries. trade freedom.9 billion Primarily minerals. independent of politics and free of corruption.5 million GDP (PPP): $31.9 billion Primarily machinery and equipment.3% free 100 @ @ @ @ @ @ @ @ @ @ @ 80 @ @ @ @ @@ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ Luxembourg has high levels of investment freedom. The average tariff rate is low (though non-tariff barriers include EU subsidies). Luxembourg is ranked 3rd out of 41 countries in the European region. During the 20th century. 60 @ @ @ 40 Europe Average = 67. Foreign investment in Luxembourg is welcome.3% (2004 estimate) Inflation (CPI): 2. The government has instituted a streamlined registration for all new businesses. and business regulation is efficient. steel products. maintains one of the world’s highest income levels. according to our 2007 assessment. partially reflecting new methodological detail. rubber products. The judiciary.LUXEMBOURG Rank: 8 Regional Rank: 3 of 41 uxembourg’s economy is 79. and the regulatory structure is liberal and transparent. Its overall score is 1 percentage point lower than last year. Virtually all commercial operations are simple and transparent. despite a deceleration in per capita GDP in recent years. quality consumer goods 257 . has an exemplary ability to protect property rights.7 billion 4. BACKGROUND: Luxembourg is a founding member of the European Union and. business freedom. glass Imports: $37. Inflation is fairly low. chemicals. There are no restrictions that apply specifically to foreign investors. and monetary freedom.3 percent free. L The economy is 79. ann. The financial sector is highly developed and is regarded as a global financial hub that maintains depositor secrecy. property rights. Luxembourg could do slightly better in freedom from government. food.

The government’s one-stopshopping system for business registration applies to foreign and domestic enterprises alike. an additional 20 percent is deducted from Luxembourg’s trade freedom score to account for these non-tariff barriers.2% Luxembourg is a member of the euro zone. = world average BUSINESS FREEDOM — 90% The process for establishing a business in Luxembourg is simple and straightforward. The government restricts investments that directly affect national security.9 percent (including a 4 percent employment fund contribution). purchase of real estate. There has been a withholding tax on interest from bank accounts held by non residents since July 2005.7 percent in 2005. In the most recent year. including consumption and transfer payments.4 55. Of the world’s 50 leading banks. Generous unemployment benefits. and regulations are transparent and undemanding. Consequently. Banking secrecy is legally enforced. Municipal business tax rates vary.7 percent of its total revenues from state-owned enterprises and government ownership of property. L L L L L 100 100 = most free. and the government received 1. pose a challenge to labor market flexibility.LUXEMBOURG’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 90 76. The top income tax rate is 38. and other market access restrictions.6 percent. which are almost twice as high as those in neighboring countries. and close a business is well protected by the national regulatory environment.5 percent surcharge). Other taxes include a value-added tax (VAT) and a wealth tax. TRADE FREEDOM — 76. The government also regulates electricity rates 258 2007 Index of Economic Freedom . Foreign and domestic businesses receive equal treatment. Credit is allocated on market terms. L L L L L 50 INVESTMENT FREEDOM — 90% Luxembourg has a very open foreign investment regime. averaging 2. Luxembourg’s minimum wage is the highest in the EU. are high. 30 have subsidiaries in Luxembourg. Various non-tariff barriers are reflected in EU and Luxembourg government policy. the government subsidizes agricultural production.4 percent between 2003 and 2005. transparent.2 percent of GDP.95 percent (38 percent plus a 2. Consequently. and the judiciary is of high quality. distorting the prices of agricultural products.and long-term financing of investments made by Luxembourg-based companies. Inflation in Luxembourg is low.2 90 80 90 85 70 0 and some fuel prices and influences prices through stateowned enterprises. including agricultural and manufacturing subsidies.9 80.9% Total government expenditures in Luxembourg. Both residents and nonresidents may hold foreign exchange accounts. Société Nationale de Crédit et d’Investissement (SNCI).6% Luxembourg’s trade policy is the same as those of other members of the European Union. The common EU weighted average tariff rate was 1.6 75. operate. repatriation of profits. and the banking system is highly competitive. Corruption is perceived as minimal. offering an unrestricted range of activities. Foreign investors may freely access credit domestically. government spending equaled 43. Luxembourg had 155 banks from over 20 different countries. and applied evenly in most cases. or access to foreign exchange.4% Luxembourg has a high income tax rate but a low corporate tax rate. offers medium. MONETARY FREEDOM — 80. FINANCIAL FREEDOM — 80% Luxembourg has a sophisticated and well-developed financial sector that serves as a global financial hub. The one state-owned bank. There are no restrictions or barriers with respect to capital transactions or current transfers. Structural unemployment has been increasing in recent years. The overall freedom to start. 10 percent is deducted from Luxembourg’s monetary freedom score to account for these policies. At the end of January 2006. overall tax revenue as a percentage of GDP was 40. Relatively stable prices explain most of the monetary freedom score. As a participant in the EU’s Common Agricultural Policy. Non–European Economic Area banks need a license from the Commission de Surveillance du Secteur Financier to set up a branch or subsidiary. Luxembourg ranks 13th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. PROPERTY RIGHTS — 90% Private property is well protected in Luxembourg. In the most recent year. regulatory and licensing restrictions. LABOR FREEDOM — 70% The labor market operates under somewhat flexible employment regulations that could be improved to enhance employment and productivity growth. FISCAL FREEDOM — 75. and there are no local content requirements. Banking is one of Luxembourg’s largest industries. and the top corporate tax rate is 22. Banks operate as universal banks. FREEDOM FROM CORRUPTION — 85% FREEDOM FROM GOVERNMENT — 55. Contractual agreements are strongly secured. Regulations are fair. Supervision is strong.

iron and steel Imports: $3. investment freedom. tobacco.S.2% (end 2004) Inflation (CPI): 1. Under the guidance of Prime Minister Vlado Buckovski. automobiles. but total tax revenue is somewhat high as a percentage of GDP. chemicals. Its overall score is 0. Personal and corporate income tax rates are very low. the Ohrid Agreement prevented an all-out civil war by giving greater recognition to the Albanian minority within a unitary state. beverages. ann. and steel.6 20 0 1995 2007 QUICK FACTS Population: 2 million GDP (PPP): $13. and its overall score is lower than the regional average. food products How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. which makes it the world’s 71st freest economy. iron. BACKGROUND: Since gaining its independence from the former Yugoslavia in 1991. partially reflecting new methodological detail. property rights. Following civil strife in 2001.8% free 100 80 @ @ @@ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ 60 40 Europe Average = 67. although some (like electricity) are distorted by state-owned businesses.5% 5-yr. Macedonia is ranked 32nd out of 41 countries in the European region. including weak freedom from government.8 percent free.0% FDI (net inflow): $150.4 billion 4. Macedonia has high levels of fiscal freedom and monetary freedom.org/index. and inefficiency. fuels.5 World Average = 60. according to our 2007 assessment. 259 .0 billion Exports: $2. The government is pushing forward efforts to reduce its influence on the price of market goods.1 million Official Development Assistance: Multilateral: $96 million Bilateral: $173 million (31% from the U.2 billion Primarily machinery and equipment. growth $6. although state-owned businesses do not account for a significant portion of total revenue. Inflation is low. partially as a result of the country’s political turmoil. The economy is 60. miscellaneous manufactures.MACEDONIA Rank: 71 Regional Rank: 32 of 41 M acedonia’s economy is 60.1% growth in 2004 1. and freedom from corruption.) External Debt: $2. Macedonia has faced a troublesome political and economic transition. The court system is prone to corruption.2 percentage point higher than last year.610 per capita Unemployment: 37. Macedonia has made great strides toward gaining membership in both the European Union and NATO. Macedonia faces many challenges. Government expenditures are high. but the high level of informal economic activity remains a concern. political interference. The principal exports include clothing.1 billion Primarily food. comp.

FISCAL FREEDOM — 90% Macedonia enjoys low tax rates. and non-residents may hold foreign exchange accounts subject to some restrictions.1% The labor market operates under restrictive employment regulations that hinder employment and productivity growth.9 73. FREEDOM FROM GOVERNMENT — 67. and one stateowned bank. Savings banks are restricted and may not offer banking operations to companies. LABOR FREEDOM — 58. Regulations related to increasing or contracting the number of work hours are rigid.8% Total government expenditures in Macedonia. the largest being the former state-owned insurer. Most capital and money market activities require the approval of or must be registered with the government. and the government received 5. are high. Obtaining a business license is relatively simple. The lack of an effective rule of law is a crucial impediment to economic development. but dismissing a redundant employee can be easy. FREEDOM FROM CORRUPTION — 27% Corruption is perceived as widespread. The top income tax rate is 18 percent. operate. FINANCIAL FREEDOM — 60% Although Macedonia has adopted reforms aimed at strengthening the financial sector. it remains relatively weak.4% Macedonia’s weighted average tariff rate was 3. Residents may hold foreign exchange accounts with approval from the central bank. Foreign-owned banks may establish branches or representative offices and control over half of banking assets. Political instability. and corruption in the customs process all add to the cost of trade. The non-salary cost of employing a worker is very high. The financial system is dominated by the banking sector. MONETARY FREEDOM — 91. 100 = most free. but closing a business can be very difficult.3 percent in 2005. In the most recent year. Import taxes. The overall freedom to start. but the government still retains an influence on certain prices through state-owned enterprises and utilities. and close a business is restricted by the national regulatory environment.8 91. PROPERTY RIGHTS — 30% Protection of property in Macedonia is weak. government spending equaled 36. The insurance industry is small and included seven companies in 2004. overall tax revenue as a percentage of GDP was 30. poor and inconsistent enforcement of commercial legislation remains a problem.8 percent. with three banks accounting for about 70 percent of assets. TRADE FREEDOM — 73. however. L L L L L L L L L L 50 100 INVESTMENT FREEDOM — 50% Macedonia grants foreign and domestic investors equal treatment and permits non-residents to invest in domestic firms. In an effort to increase labor market flexibility. import restrictions. weakens the business environment. = world average BUSINESS FREEDOM — 60. 15 savings houses. Consequently. Supervision and regulation are insufficient. compared to the world average of 48 days. Such stable prices explain most of the monetary freedom score. and the government is continuing to privatize state-owned firms. averaging 0. Other taxes include a value-added tax (VAT) and a property transfer tax.1 percent of GDP.1% Inflation in Macedonia is extraordinarily low. In the most recent year. Foreign investors may also acquire state-owned firms that are slated for privatization. Residents are generally not permitted to buy real estate abroad. Most prices are determined in the market. Payments and transfers face few controls and restrictions. The banking sector is highly concentrated. an additional 20 percent is deducted from Macedonia’s trade freedom score to account for these non-tariff barriers.9% Starting a business takes an average of 18 days. such as electricity.1 0 an additional 5 percent is deducted from Macedonia’s monetary freedom score to account for these policies. and the top corporate tax rate is 15 percent.4 percent between 2003 and 2005. except in arms manufacturing. Macedonia has 20 banks. Macedonia’s parliament passed new legislation on labor relations in 2005.1 50 60 30 27 58. including consumption and transfer payments.MACEDONIA’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 60. The country is slowly trying to harmonize its judicial standards with those of the EU. import and export quotas. non-transparent regulations and standards.4 90 67. 260 2007 Index of Economic Freedom . but this has not resulted in considerable progress toward sound corporate governance. Macedonia ranks 103rd out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. Consequently. encouraging entrepreneurship. The private sector controls about 90 percent of banking assets. The stock exchange is small.5 percent of its total revenues from state-owned enterprises and government ownership of property. Although the government has made some effort to establish a regulatory system to promote competitiveness. The executive improperly influences the judiciary. The government has almost completed the privatization of small and medium-sized enterprises.

Madagascar’s judiciary is underdeveloped and subject to the political whims of the executive. vanilla. consumer goods. poor infrastructure.3% growth in 2004 2. shellfish. sugar. Madagascar enjoys high levels of fiscal freedom. and investment freedom. The expiration the Multi-Fiber Arrangement has affected Madagascar’s textile industry. comp.1 million GDP (PPP): $15.3% 5-yr.6 percentage points lower than last year.7 billion Primarily capital goods. food 261 . and onerous bureaucracy remain problems. As in many other sub-Saharan African nations. growth $857 per capita Unemployment: n/a Inflation (CPI): 13. freedom from government.7 World Average = 60. Economic development in Madagascar is hurt by a lack of freedom in several areas.S. in which both opposition candidate Marc Ravalomanana and former military dictator and president Didier Ratsiraka claimed victory. and state-owned businesses account for virtually no tax revenue.) External Debt: $3.5 billion Exports: $1.1 billion Primarily coffee.4% free 100 80 Sub-Saharan Africa Average = 54. as are financial freedom and business freedom. Labor freedom and freedom from corruption are weak.5 billion 5.4 percent free. which makes it the world’s 65th freest economy. ann. according to our 2007 assessment. but economic growth has been strong in recent years as the government has begun to implement economic reforms. How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage.) Madagascar is a poor nation with a history of anti-market economic policies. The economy is 61. Its overall score is 1. Government expenditures are moderate. cotton cloth. Madagascar is ranked 7th out of 40 countries in the sub-Saharan Africa region. BACKGROUND: Madagascar has recovered from its 2001– 2002 political crisis. Foreign investment in Madagascar is welcome. property rights. chromite. businesses are subject to an inefficient bureaucracy that is prone to corruption.org/index. and overall tax revenue is fairly low as a percentage of GDP. partially reflecting new methodological detail. In addition. Personal income and corporate income tax rates are moderate. foreigners may own 100 percent of many businesses.6 @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @@ @ @ @ @@ @ @ @ @ @ @ @ @ 60 40 20 0 1995 2007 QUICK FACTS Population: 18. (Ratsiraka eventually fled to exile in France. petroleum products Imports: $1. Corruption. Poor weather continues to threaten the livelihood of the three-quarters of the population engaged in agriculture. trade freedom. and its overall score is well above the regional average. petroleum.MADAGASCAR Rank: 65 Regional Rank: 7 of 40 M adagascar’s economy is 61.8% FDI (net inflow): $45 million (gross) Official Development Assistance: Multilateral: $599 million Bilateral: $698 million (6% from the U. Despite some regulatory burdens.

FREEDOM FROM CORRUPTION — 28% Corruption is perceived as widespread. L INVESTMENT FREEDOM — 70% Foreign investors face a heavy bureaucratic burden. MONETARY FREEDOM — 70% Inflation in Madagascar is high. sanitary and phytosanitary regulations. Relatively high and unstable prices explain most of the monetary freedom score. overall tax revenue as a percentage of GDP was 10. There is also an extensive network of savings and loans associations. PROPERTY RIGHTS — 50% The judiciary is influenced by the executive and subject to corruption.8 87. an additional 5 percent is deducted from Madagascar’s monetary freedom score to 262 2007 Index of Economic Freedom . FREEDOM FROM GOVERNMENT — 85% Total government expenditures in Madagascar.9 percent.1 0 account for these policies. There are no restrictions on payments or transfers. Two new banks recently entered the sector: The locally based Compagnie Malgache de Banque was licensed in 2005. and the government received 0. government spending equaled 25. Six insurance companies. and a customs process that lacks transparency and is susceptible to corruption add to the cost of trade. Consequently. Both obtaining a business license and closing a business can be very difficult. but the government has taken measures to improve the investment climate.2 85 70 70 50 50 28 50.1 percent of GDP. Madagascar ranks 97th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. and the major banks are now partially privatized.MADAGASCAR’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 51. including consumption and transfer payments.6 percent in 2001. The central bank controls a third of financial sector assets. and an existing savings institution (Caisse d’Epargne de Madagascar) converted to a commercial bank. red tape and a lack of transparency remain problems. Capital markets are insignificant. Most sectors of the economy are open to 100 percent foreign ownership. Investors face a legal and judicial environment in which neither the security of private property nor the enforcement of contracts can be guaranteed. operate. subject to certain restrictions and government approval.6 percent between 2003 and 2005. In the most recent year.8% Madagascar’s weighted average tariff rate was 3. although profits must be repatriated within 30 days. The government has been pursuing banking reform. including two state-owned insurers and several foreign-owned companies. were operating in 2005. averaging 15. an additional 20 percent is deducted from Madagascar’s trade freedom score to account for these non-tariff barriers. Foreigners can also own land now. Despite the government’s efforts to streamline the regulatory process. FISCAL FREEDOM — 87.2% Madagascar has moderate tax rates. and there is no stock market. The non-salary cost of employing a worker is high. In the most recent year. FINANCIAL FREEDOM — 50% Madagascar has a small financial system that is dominated by the banking sector. Most prices are determined in the market. = world average BUSINESS FREEDOM — 51. Other taxes include a value-added tax (VAT) and a capital gains tax. such as electricity (although this influence is diminishing as the government pushes ahead with privatization). Consequently.1% The labor market operates under highly restrictive employment regulations that hinder employment and productivity growth. The overall freedom to start. Both the top income tax rate and the top corporate tax rate are 30 percent. Entrepreneurship should be easier for maximum job creation. such as a one-stop shop for approvals. TRADE FREEDOM — 72. but dismissing a redundant employee can be easy. are low. and close a business is restricted by the national regulatory environment. Import restrictions. L L L L L L L L L 50 100 100 = most free. Both residents and non-residents may open foreign exchange accounts. Most capital movements with other nations require government authorization. LABOR FREEDOM — 50. Regulations related to increasing or modifying the number of work hours are rigid. but the government retains an influence on certain prices through state-owned enterprises and utilities. import bans.2 72. compared to the world average of 48 days. The land titling process is very bureaucratic.8 percent of its total revenues from state-owned enterprises and government ownership of property. Non-performing loans remain a problem.2% Starting a business takes an average of 21 days.

and corruption is a major problem. but overall tax revenue is not large as a percentage of GDP. Malawi has a high level of labor freedom and moderate levels of investment freedom. apparel Imports: $613 million (2004 estimate) Primarily food. burdensome regulation.2 billion 5. The economy is 55. and Malawi possesses few natural resources.5% 5-yr. transportation equipment How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. cotton.7 World Average = 60. and sugar are the primary exports. ann. The labor market is surprisingly flexible. and state-owned enterprises and utilities.org/index. peanuts. An estimated 15 percent of the population is infected with HIV/AIDS. financial freedom. More than 85 percent of the population is engaged in subsistence agriculture. The top income tax and corporate tax rates are fairly high. Tobacco. wood products. tea. coffee.4% FDI (net inflow): $16 million (gross) Official Development Assistance: Multilateral: $222 million Bilateral: $332 million (17% from the U. inadequate infrastructure.4 billion Exports: $483. comp.1% growth in 2004 1. Its overall score is 2. freedom from government. Its economy is hindered by bureaucracy. semimanufactures. 263 . coffee. partially reflecting new methodological detail.) External Debt: $3. sugar.3 million (2004 estimate) Primarily tobacco.4 percentage points lower than last year. although government subsidies are not widespread. and property rights are weak. Monetary freedom. petroleum products. and fiscal freedom. BACKGROUND: Malawi is one of Africa’s most densely populated countries. Inflation in Malawi is very high. consumer goods.MALAWI Rank: 106 Regional Rank: 17 of 40 M alawi’s economy is 55. Industrial activity is a small part of the economy. A weak rule of law jeopardizes the protection of property rights.6 @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @@ @ @ @ @@ @ @ @ @ @@ @ @ @ @ @ @@ @ @ 60 40 20 0 1995 2007 QUICK FACTS Population: 12.5 percent free. Government spending is over two fifths of GDP. according to our 2007 assessment.5% free 100 80 Sub-Saharan Africa Average = 54. growth $646 per capita Unemployment: n/a Inflation (CPI): 11. and recurring drought can create food shortages. Malawi is ranked 17th out of 40 countries in the sub-Saharan Africa region. cotton. and employment is not heavily regulated in ways that impede job creation. tea. corruption. freedom from corruption. Agriculture accounts for about 45 percent of gross domestic product and 90 percent of export earnings. and its overall score is slightly higher than the regional average. Malawi is beset by substantial economic problems that are characteristic of the region.6 million GDP (PPP): $8. which makes it the world’s 106th freest economy.S.

and a customs process that can be non-transparent and corrupt add to the cost of trade. There are 12 insurance companies. FREEDOM FROM CORRUPTION — 28% Corruption is perceived as widespread.2 percent in 2001.4% Starting a business takes an average of 37 days. Regulations related to increasing or contracting the number of work hours are flexible. There were 10 full-service commercial banks and several other non-bank financial institutions in 2006. Some payments and transfers face quantitative limits. The non-salary cost of employing a worker is very low. The two largest banks are the domestic National Bank of Malawi (NBM). = world average BUSINESS FREEDOM — 54. L L L L L L L L L L 50 100 INVESTMENT FREEDOM — 50% The government welcomes foreign investment.6% Malawi has high tax rates. including consumption and transfer payments.6 53. such as electricity.4 59. Residents may not hold foreign exchange accounts abroad. Red tape and bureaucratic delays are persistent problems. the government retains an influence on certain prices through state-owned enterprises and utilities. The top income tax rate is 40 percent.6% Malawi’s weighted average tariff rate was 10. Restrictions based on environmental. including one foreign insurer and one re-insurer. generally allocated on market terms. The overall freedom to start. overall tax revenue as a percentage of GDP was 20. an additional 20 percent is deducted from Malawi’s trade freedom score to account for these non-tariff barriers. Capital markets are very small. Entrepreneurship should be easier for maximum job creation.8% The labor market operates under relatively flexible employment regulations that could be improved to enhance employment and productivity growth. and the government received 12. compared to the world average of 48 days. explosives.3 66. Obtaining a business license is relatively simple.4% Inflation in Malawi is high. Malawi ranks 97th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. Consequently.6 80. controls the prices of petroleum products and sugar. Such unstable prices explain most of the monetary freedom score. The state also owns the Malawi Development Corporation.7 percent of GDP. and the stock exchange lists only 10 companies. which is half owned by the government. but this is not seen as an obstacle. Non-residents may hold foreign exchange accounts. but subsidies. PROPERTY RIGHTS — 40% Malawi’s laws protect all rights to property. but closing a business can be very difficult. MONETARY FREEDOM — 66. which services industry. In the most recent year. dominated by banking. averaging 13. Administration of the courts is weak. and Stanbic Bank (formerly known as Commercial Bank of Malawi).MALAWI’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 54. The government has been working to liberalize the trade regime.8 0 from Malawi’s monetary freedom score to account for these policies. 264 2007 Index of Economic Freedom . but dismissing a redundant employee can be relatively costly. and close a business is restricted by the national regulatory environment. FISCAL FREEDOM — 80. There are some reports of government intervention in some cases and frequent allegations of bribery in civil and criminal cases. and manufacturing that involves the treatment or disposal of hazardous waste or radioactive material. subject to restrictions and government approval in some cases.9 percent between 2003 and 2005. health. FINANCIAL FREEDOM — 50% Malawi’s financial sector is developing but remains unsophisticated. import and export licensing requirements. including real property and intellectual property. FREEDOM FROM GOVERNMENT — 53. 100 = most free.4 50 50 40 28 72. an additional 10 percent is deducted LABOR FREEDOM — 72. Other taxes include a value-added tax (VAT) and a property tax.3% Total government expenditures in Malawi. and the top corporate tax rate is 30 percent. Much bank lending goes to the government or state-owned enterprises. Consequently. and uses subsidies to stabilize maize and fertilizer prices. government spending equaled 42. Financial institutions offer a variety of credit instruments. operate.3 percent of its total revenues from state-owned enterprises and government ownership of property. Although most prices are determined in the market.1 percent. and due process can be very slow. transportation. Foreign investors are active participants in the stock market. A short list of products require a license for both domestic and foreign investors. Most capital transactions by residents—including outward direct investment—require approval. In the most recent year. a subsidiary of a South African bank. are high. TRADE FREEDOM — 59. burdensome regulations. export controls on maize. import taxes. water and telecommunications. and national security concerns affect investment in weapons.

How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage. and the government has been working to eliminate some of the non-tariff barriers that impede trade. 2006. Malaysia suffers from weak investment freedom and weak financial freedom. Malaysia enjoys high levels of fiscal freedom.5% FDI (net inflow): $2.6 billion Official Development Assistance: Multilateral: $4 million Bilateral: $447 million (0.8% free 100 80 @ @ @ @@ @@ @@ @ @ @ @ @ @ @ @@ @ @ @ @ @ @ @ @@ @ @ @ @ @ @ @ @ @ @ 60 40 Asia Average = 59. has held power in a 14party coalition called Barisan National since 1957.1 billion Exports: $118.MALAYSIA Rank: 48 Regional Rank: 8 of 30 M alaysia’s economy is 65. but it is also subject to significant government interference and some restrictions on foreign involvement. Negotiating a comprehensive agreement is expected to be challenging for both sides. chemicals Imports: $96.6 billion Primarily electronic equipment. BACKGROUND: Malaysia’s ruling political party.8 billion 7. plastics.) External Debt: $52. foreign investment is deterred by such impediments as limited voting shares in companies. the United Malays National Organization.1 World Average = 60. partially reflecting new methodological detail. and case-by-case government preinvestment approval. The tariff rate is fairly low.1% growth in 2004 5.6% Inflation (CPI): 1. textiles. and labor freedom. petroleum products. vehicles. which makes it the world’s 48th freest economy. that it would initiate negotiations with Malaysia for a free trade agreement. palm oil. Its overall score is 2. Services and industry are the mainstays of the economy and provide the vast majority of employment opportunities. Malaysia is ranked 8th freest out of 30 countries in the Asia–Pacific region. growth $10. ann.8 percent free. A highly flexible labor sector with simple employment procedures and no minimum wage helps businesses to stay competitive. trade freedom.org/index. according to our 2007 assessment. and its overall score is higher than the regional average. Despite efforts to liberalize procedures. comp. Trade Representative announced on March 8.S.2% 5-yr. Inflation is minor. iron and steel products. Malaysia’s financial sector is fairly well developed. and overall tax revenue is relatively low as a percentage of GDP. rubber. Both the top income tax rate and the top corporate tax rate are moderate.276 per capita Unemployment: 3. monetary freedom. petroleum.S. The economy is 65.2% from the U. chemicals 265 . wood. and the government does not widely distort market prices with direct subsidies. machinery.9 million GDP (PPP): $255. enforced hiring of ethnic Malays. Prime Minister Abdullah Badawi is expected to remain in power until the next election in 2009. liquefied natural gas. The Office of the U. wood products.8 billion Primarily electronics.1 percentage points higher than last year.6 20 0 1995 2007 QUICK FACTS Population: 24.

but government approval is required in many cases. and other financial institutions.8% Malaysia’s weighted average tariff rate was 4. burdensome regulations and standards. steel. In September 2005. Both the top income tax rate and the top corporate tax rate are 28 percent. restrictive government procurement rules. although many firms include a mandatory arbitration clause in their contracts. overall tax revenue as a percentage of GDP was 16 percent.MALAYSIA’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 68. but foreign investors still face such restrictions as limited voting shares. LABOR FREEDOM — 89. and services market access barriers add to the cost of trade.5 percent between 2003 and 2005. L L L L L 50 INVESTMENT FREEDOM — 40% Foreign investment rules have been eased over the years.8% Total government expenditures in Malaysia. Foreign equity in banks is restricted. weak protection of intellectual property rights. non-transparent import tax rules. milk. Other taxes include a capital gains tax and a vehicle tax. Of the 29 commercial banks operating as of September 2005.8% Malaysia has moderate tax rates. Most prices are determined in the market. Consequently. but the government influences certain prices through state-owned enterprises. compared to the world average of 48 days.5 percent of its revenues from state-owned enterprises and government ownership of property. sugar. FREEDOM FROM CORRUPTION — 51% Corruption is perceived as present. and close a business is relatively well protected by the national regulatory environment. 10 were domestically owned and 13 were foreign-owned. government spending equaled 26. TRADE FREEDOM — 71. Nearly all capital transactions are prohibited. wheat flour. Numerous restrictions apply to the insurance industry. or require government approval. including restrictions on expatriate employment and foreign equity. controls the prices of petroleum products. MONETARY FREEDOM — 80% Inflation in Malaysia is relatively low. Consequently. are moderate. export licensing. an additional 20 percent is deducted from Malaysia’s trade freedom score to account for these non-tariff barriers.6 71. The government owns a majority of Malaysia’s two largest local commercial banks. FREEDOM FROM GOVERNMENT — 79.5 0 usually sets ceiling prices for an extended list of essential foods during major holidays. The government influences the allocation of credit. In the most recent year. FISCAL FREEDOM — 87. and mandatory hiring of ethnic Malays. prior approval. but foreign participation in stockbrokerages and trust management companies is restricted. L L L L L 100 100 = most free.8 80 40 40 50 51 89. an additional 10 percent is deducted from Malaysia’s monetary freedom score to account for these policies. the government eased restrictions for domestic residents to buy foreign-listed securities and for foreigners to sell shares in the domestic market. There are several offshore banks. and dismissing a redundant employee is not difficult.5 percent of GDP. Obtaining a business license can be difficult. Malaysia ranks 39th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005. Entrepreneurship should be easier for maximum job creation. including consumption and transfer payments.8 79.5% The labor market operates under flexible employment regulations that enhance employment and productivity growth. Malaysia does not have a national minimum wage. FINANCIAL FREEDOM — 40% Malaysia’s financial sector is relatively well developed but subject to extensive government intervention. operate. The government restricts the number of expatriates that foreign and domestic firms may hire. Foreigners may trade in securities and derivatives. The government has made progress in liberalizing the trade regime. The overall freedom to start. but the judiciary is subject to political influence. bread. and chicken meat. import bans. cement.1 percent in 2003. Six Islamic banks (five domestic and one foreign) account for over 10 percent of baking assets. Corporate lawsuits take over a year to file. export subsidies. Cases are generally handled in a satisfactory manner.6% Starting a business takes an average of 30 days. with participation in commercial banking limited to a maximum of 30 percent. PROPERTY RIGHTS — 50% Private property is protected in Malaysia.8 87. are subject to restrictions. Relatively low and stable prices explain most of the monetary freedom score. and the government received 11. In the most recent year. but non-automatic import licensing. but closing a business is relatively easy. insurance companies. averaging 2. = world average BUSINESS FREEDOM — 68. The government has announced that it will reduce individual and corporate tax rates when introducing a value-added tax (VAT). The non-salary cost of employing a worker is moderate. Residents and non-residents may hold foreign exchange accounts. and 266 2007 Index of Economic Freedom .

food. economic growth over the past 10 years has averaged about 5 percent.1% FDI (net inflow): $179. though at a level comparable to the U.7% free 100 80 Sub-Saharan Africa Average = 54. Other ongoing problems include desertification. growth $998 per capita Unemployment: 14. and there is very little income from state-owned businesses.4% 5-yr. such as fuel. an inefficient judiciary. illiteracy. labor freedom. Business operations are difficult and inconsistently regulated. which is subject to political interference. Both the top income tax rate and the top corporate tax rate are high. Instability in the Ivory Coast affects the many Malians that live or work there. comp. Government expenditures are moderately low. and inflation is fairly low. and corruption. Mali is ranked 24th out of 40 countries in the sub-Saharan Africa region.3% growth in 2004 4. Bolstered by a decade of enhanced political and social stability. salt. The labor market is highly inflexible. Mali has weak business freedom.7 World Average = 60. which makes it the world’s 123rd freest economy. Its overall score is 0. chemicals. ann.org/index. property rights. rum. fruit.. the country’s inefficient and corrupt bureaucracy negatively affects most aspects of commercial life. mineral fuels.1 million GDP (PPP): $13. live animals 267 . and government revenue from taxes is not huge compared to GDP. transport equipment. but on the whole does not significantly influence prices. BACKGROUND: Most of the labor force in landlocked. including the first successful democratic transfer of power in 2002. The economy is 53.7 percent free. according to our 2007 assessment.5 billion Primarily machinery.0 million Official Development Assistance: Multilateral: $311 million Bilateral: $430 million (11% from the U. vegetables Imports: $1. Property rights are not secured by the judiciary. While Mali remains one of the world’s poorest countries. partially reflecting new methodological detail.) External Debt: $3. animal products.MALI Rank: 123 Regional Rank: 24 of 40 M ali’s economy is 53.2 billion Primarily mineral products. chemicals.1 billion 2.S. the government has implemented policies to liberalize the economy and strengthen the investment climate. The state controls prices on some staples. Mali enjoys high levels of freedom from government and monetary freedom.4 percentage point lower than last year.S. and its overall score is equal to the regional average. manufactures.6 @ @@ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @@ @@ @@ @ @ 60 40 20 0 1995 2007 QUICK FACTS Population: 12. drought-prone Mali works in agriculture and herding.6% (2001 estimate) Inflation (CPI): –3. inadequate infrastructure. deforestation.3 billion Exports: $1. financial freedom. and freedom from corruption. How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage.

MONETARY FREEDOM — 78. and a housing bank. and authorization depending on the transaction. and the government received 2. derivatives. Import restrictions. import licensing restrictions.5 84. such as telecommunications. The Central Bank of West African States (BCEAO). PROPERTY RIGHTS — 30% The constitution provides for an independent judiciary. and issues and purchases of securities.7 0 INVESTMENT FREEDOM — 50% The government allows for 100 percent foreign ownership of any new business.4 percent between 2003 and 2005. operate. Only three commercial banks are fully private.4 50 40 30 29 49. import bans. The overall freedom to start. There were five insurance firms and two pension funds in 2003. Consequently.7 percent in 2004.1 58. Relatively moderate and unstable prices explain most of the monetary freedom score. The government has a minority stake in the three main banks (including 20 percent in the largest bank. 268 2007 Index of Economic Freedom . an agricultural bank.6 percent of its total revenues from state-owned enterprises and government ownership of property. There is a relatively small regional stock exchange based in the Ivory Coast. Payments and transfers to some countries require government approval. Despite government efforts to improve the regulatory structure. In the most recent year. where lower-rank civil workers request bribes to speed up the approval process. an additional 10 percent is deducted from Mali’s monetary freedom score to account for these polici