Hong Kong Recognized as the Most Economically Free Jurisdiction in the World
Contact:
Richard Y.C. Wong, Director,
Hong Kong Centre for Economic Research, Tel: (852) 2547-8313Release Date: 11 January 2000
HONG KONG, SAR>>> Hong Kong, along with Singapore, are the most economically free jurisdictions in the world according to the Economic Freedom of the World: 2000 Annual Report, released today at a Hong Kong press conference. The report, published by the Hong Kong Centre for Economic Research, Canada's Fraser Institute, and the U.S.-based Cato Institute, in conjunction with independent institutes from 52 other countries, ranks 123 countries on their level of economic freedom.
This comprehensive index, constructed under the leadership of The Fraser Institute and Nobel Laureate in Economics, Milton Friedman, is the most objective and accurate measure of economic freedom published to date by any organization.
"This publication is important to journalists, public policy researchers, government officials, and the general public alike because it provides a powerful tool for examining the role that economic freedom plays in achieving prosperity and economic development. Hong Kong provides the classic example of the paramount importance of economic freedom and secured property rights as the foundations for building economic success," says Y.C. Richard Wong, Director of the Hong Kong Centre for Economic Research.
Hong Kong's Score Falls, But Maintains Top Ranking
Hong Kong has enjoyed high levels of economic freedom since 1970 (see Figure 1). In fact, for almost this entire period Hong Kong was the top ranked jurisdiction in the world (it held 2nd place temporarily in 1985). Hong Kong's overall rating is up since 1990 but is down from a peak score of 9.8 (their overall ranking out of 10) in 1995. This slip can be attributed to a decline in the score for the Legal Structure and Property Rights section of the Index (this score rates the security of private property rights, viability of contracts, and the consistency of the legal structure with the rule of law). In the other areas of the index Hong Kong's score is as high or higher than it was in 1995.
"The resumption of sovereignty over Hong Kong by China on July 1, 1997 has not materially hurt the economic freedom long enjoyed by the people of the territory," says Michael Walker, Executive Director of The Fraser Institute.
"The latest rating maintains Hong Kong's primacy as the most economically free place on earth. This year Hong Kong will share that title with Singapore, however, it is our expectation that Hong Kong will resume sole possession."
Hong Kong's rating tied with Singapore largely because of the lagged effect of concern about contract repudiation when Hong Kong became the Special Administrative Region.
Since contracts entered into by the Hong Kong government did not have the complete involvement of the People's Republic of China there was initial concern that some contracts, including the one for Hong Kong's airport, would not be honoured. That uncertainty is now past and future ratings for Hong Kong should see the SAR achieving a high score in the Index's Viability of Contracts rating.
Following Hong Kong and Singapore, the next freest economies are New Zealand (3rd), the United States (4th), and the United Kingdom (5th). Other countries ranking near the top of the list include Ireland (6th), Canada (7th), Australia (7th), Netherlands (9th), Luxembourg (9th), and Switzerland (9th). The least free economies include Myanmar (123rd), Democratic Republic of Congo (122nd), Sierra Leone (121st), Rwanda (120th), Madagascar (119th), and Guinea-Bissau (118th).
In the 1990s a number of Latin American countries achieved dramatic improvements in both their ratings and rankings. Peru, Nicaragua, Argentina, El Salvador, and Dominican Republic all improved their ratings by at least 2 points. Among Eastern nations, Russia, Hungary and Poland have improved their levels of economic freedom. Countries with a decline in the level of economic freedom in the 1990s include Benin, Chad, Malaysia, Cameroon, and Senegal.
Economic freedom leads to greater prosperity
One of the most compelling results of the study is the relationship between economic freedom and prosperity. Countries that score in the top quintile of the "most economically free" countries had an average per capita GDP of US$18,108 and an average growth rate of 1.6%. As freedom declined, so did the average per capita GDP, as well as the average growth rate. The bottom 20 percent of economically free countries had an average per capita GDP of US$1,669 and an average growth rate of -1.32%. Also, life expectancy in the top quintile is a full twenty years longer than that found in the bottom quintile.
Data from the Economic Freedom of the World series and research studies that use the Economic Freedom of the World ratings confirm that countries with consistently high levels of economic freedom perform far better, both financially and non-financially, than those with low levels of economic freedom. The research indicates that political leadership which fosters more economic freedom creates the domestic foundations for a higher standard of living and increased economic growth.
Methodology
This edition of Economic Freedom of the World presents updated figures and backdates the data to 1970 (where possible).
The addition of historical data makes this the most comprehensive measure of economic freedom ever published. This wealth of data will provide researchers with an opportunity to further explore the relationships between economic freedom and other important social indicators.
The seven major categories of variables included in the index are: (1) size of government, (2) the structure of the economy and use of markets, (3) monetary policy and price stability, (4) freedom to use alternative currencies, (5) legal structure and security of private ownership, (6) freedom of trade with foreigners, and (7) freedom of exchange in capital and financial markets.
Data on twenty-three variables was gathered for 123 countries in the most recent year. These variables attempt to quantify the restrictions on economic freedom imposed by governments in a variety of areas. A score from 0 to 10 (0 being least free, 10 representing freest) based on strictly the data was assigned for each variable for each country. Principal component analysis (an advanced statistical technique) was used to attach weights to the component data which ultimately combine to create a summary rating.
Figure 1
Established in 1974, The Fraser Institute is an independent public policy organization based in Vancouver.
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The Fraser Institute, (604) 714-4582,
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