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Hong Kong as the Most Economically
Free Jurisdiction in the World
Richard Y.C. Wong,
Director,
Hong Kong Centre for Economic Research
Release 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
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