Chapter 3

The
Economic Freedom
Network

Chapter 3

Country Profiles

This chapter presents detailed data covering both economic freedom and the recent economic performance for 81 of the 115 countries included in this study.

For each country, we present a bar chart of both the summary economic freedom rating and total government expenditures as a share of GDP for 1975, 1980, 1985, 1990, and 1995. [We made a special effort to obtain figures for total government expenditures for all purposes, including government consumption, investment, transfers and subsidies, and net interest cost. We also sought to include expenditures for all levels of government. Grants and aid from a central government to lower levels were counted only once. As we discovered, this comprehensive measure for size of government is not an easy figure to obtain. The reported figures are often for the central government only or they often omit important categories of government expenditures such as income transfers, capital expenditures, or interest. For OECD countries, the primary source of this figure was OECD Historical Statistics, Table 6.5. The institutes of the Economic Freedom Network often helped us obtain this figure for the countries they represent.] For years, the government expenditure/GDP ratio was considered the most objective measure of the size of the government sector compared to the market sector. In addition to government expenditures (including both government consumption and size of the transfer sector), our economic freedom index highlights the importance of several other factors including monetary stability and institutions, price controls, discriminatory taxation, and freedom of international exchange. Some would argue that these "other factors" should have less (or more) weight in the measurement of economic freedom. Observation of changes in both economic freedom and government expenditures will help us better interpret the trends in, and meaning of, these two different but interrelated indicators.

Part 1 of each country profile shows the ratings for each of the seventeen components of the economic freedom index, as well as the accompanying area and summary ratings. When they can be easily denoted, the underlying raw data upon which the component rating was based are reported in parentheses. Since this information is presented for each rating year, it makes it easy to observe the specific component factors causing a country’s rating to change over time. The country rankings for each year are also reported in the final line of Part 1.

The International Monetary Fund (International Financial Statistics and Government Finance Statistics Yearbook) and the World Bank (World Tables) provided the primary data sources for money supply, GDP deflator, government consumption as a share of total consumption, interest rates, transfers and subsidies, taxes on international trade, and the size of the trade sector used to derive the related components presented in Part 1. The precise sources used to derive each component of the index and a complete explanation of the procedures used to determine the component ratings are indicated in the source notes accompanying the tables of Appendix II.

Part 2 of each country profile presents annual data for various key indicators of economic policy and performance for the 1988- 1996 period. Population and per capita real GDP figures are reported at the beginning of Part 2. The per capita GDP figure (in 1995 U.S. dollars) is an update of the Summers and Heston, Penn World Tables (Cambridge: National Bureau of Economic Research, 1994) income data which were derived by the purchasing power parity method. The original data were in 1985 dollars and they generally ran through 1992. We used real per capita GDP growth rates as measured in local currencies to update the Summers and Heston data to 1996, and the U.S. GDP deflator to convert from 1985 to 1995 dollars. While purchasing power parity estimates of GDP are less widely reported than estimates derived by the exchange rate conversion method, most economists believe that the former are more accurate. Furthermore, the Summers and Heston data are widely accepted as the best available set of income comparisons across countries.

The growth rates of per capita real GDP for 1980-1990 and 1990-1996 are also presented in Part 2. These figures were derived from real GDP (measured in local currency) and population data. Annual growth rates for real GDP are also shown for 1988-1996.

Part 2 also presents annual data for the rate of inflation (as measured by the CPI), money supply (both M1 and M2) growth rates, gross investment/GDP ratio, size of trade sector (defined as exports + imports divided by two as a percent of GDP), government expenditure/GDP ratio, deficit (or surplus) of the central government as a share of GDP, and the rate of unemployment. Except for the unemployment data for OECD countries, the source for all the annual data in Part 2 was the International Monetary Fund, International Financial Statistics, (either the annual yearbook or the monthly publication). Since the OECD Economic Outlook provides unemployment figures based on a standardized definition, these figures were used for OECD members. When we were unable to obtain the necessary data from international sources, the institutes of the Economic Freedom Network were sometimes able to obtain the figures for us from national sources.

Finally, each country profile includes a written description of the country’s economic freedom and performance. Many of the member institutes of the Economic Freedom Network helped us in the preparation of this text and in checking the accuracy of the data. Of course, we bear complete responsibility for any errors.

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