Foreign aid fails poor countries – economic freedom is key

October 4, 2006

Free Market Foundation

Economic freedom has a greater impact than foreign aid in helping people in poor nations escape poverty, according to the Economic Freedom of the World: 2006 Annual Report, released in the US by the Cato Institute in conjunction with the Fraser Institute of Canada.

Once greater economic freedom is taken into account, poor nations, far from being caught in a “poverty trap,” grow faster than rich nations, say the authors:

In this year’s index, Hong Kong retains the highest rating for economic freedom, 8.7 out of 10, followed by Singapore at 8.5. New Zealand, Switzerland, and the United States tied for third with ratings of 8.2.

The United Kingdom and Ireland are tied for the 6th place, Canada ranks 8th, and Iceland and Luxembourg are tied for 9th.

The rankings of other large economies are Germany, 17; Japan, 19; France, 24; Italy, 45; India, 53; Mexico, 60; Brazil, 88; China, 95; and Russia, 102.

Chile ranks as the freest economy in Latin America (20), while Botswana ranks as the freest economy in Africa (35).

Also:

Nations that have made substantial gains in economic freedom since 1985 are Hungary, Iceland, El Salvador, Zambia, Poland, Bolivia, Israel, Ghana, Uganda, Peru and Nicaragua.

Nations that have registered significant losses in economic freedom since 1985 are Myanmar, Venezuela and Zimbabwe.

The bottom ten nations were the Central African Republic, Rwanda, Burundi, Algeria, Guinea-Bissau, Venezuela, Democratic Republic of Congo, Republic of Congo, Myanmar and Zimbabwe.

“Economic Freedom of the World” measures the degree to which the policies and institutions of countries are supportive of economic freedom. The cornerstones of economic freedom are personal choice, voluntary exchange, freedom to compete, and security of privately owned property.

Source: James Gwartney and Robert Lawson with William Easterly, Economic Freedom of the World: 2006 Annual Report, Cato Institute/Fraser Institute, September 7, 2006.

For text: http://www.cato.org/new/pressrelease.php?id=56

For report: http://www.cato.org/pubs/efw/

For more on International Issues: http://www.ncpa.org/sub/dpd/index.php?Article_Category=26

FMF Policy Bulletin/ 26 September 2006