Index of Economic Freedom: About the Index | The Heritage Foundation

The Index of Economic Freedom

The Index of Economic Freedom focuses on four key aspects of the economic and entrepreneurial environment:

• Rule of law,
• Government size,
• Regulatory efficiency, and
• Market openness.

In assessing conditions in these four categories, the Index measures 12 specific components of economic freedom, each of which is graded on a scale from 0 to 100. Scores on these 12 components of economic freedom are calculated from a number of sub-variables and then equally weighted and averaged to produce an overall economic freedom score for each economy.

Rule of Law

Property Rights

The property rights component assesses the extent to which a country’s legal framework allows individuals to acquire, hold, and utilize private property and the extent to which these rights are secured by applicable laws that the government enforces effectively. Relying on a mix of survey data and independent assessments, it provides a quantifiable measure of the degree to which a country’s laws protect private property rights and the extent to which those laws are respected. It also assesses the level of state expropriation of private property. The more effective the legal protection of property is, the higher a country’s score will be, and the greater the chances of government expropriation of property are, the lower a country’s score will be.

The score for this component is derived by averaging scores for three equally weighted sub-factors:

• Risk of expropriation,
• Respect for intellectual property rights, and
• Quality of contract enforcement, property rights, and law enforcement.

Each sub-factor is converted to a scale of 0 to 100 using the following equation:

Sub-factor Score_i = 100 x (Sub-factor_i ‐ Sub-factor_Min) / (Sub-factor_Max ‐ Sub-factor_Min)1

where:

• Sub-factor_i: represents the original data for country i.
• Sub-factor_Max: represents the upper bounds for the corresponding data set.
• Sub-factor_Min: represents the lower bounds for the corresponding data set.
• Sub-factor Score_i: represents the computed sub-factor score for country i.

Sources: The Index relies on the most recent available versions of the following sources in assessing property rights: Credendo, Country Risk and Insights; U.S. Chamber of Commerce, Global Innovation Policy Center, International IP Index; and World Bank, Worldwide Governance Indicators.

Judicial Effectiveness

Properly functioning legal frameworks are essential for protecting the rights of all citizens against unlawful acts by others, including governments and powerful private parties. Judicial effectiveness requires efficient and fair judicial systems to ensure that laws are fully respected and appropriate legal actions are taken against violations.

The score for the judicial effectiveness component is derived by averaging scores for three equally weighted sub-factors:

• Judicial independence,
• Quality of the judicial process, and
• Perceptions of the quality of public services and the independence of the civil service.

Each sub-factor is converted to a scale of 0 to 100 using the following equation:

Sub-factor Score_i = 100 x (Sub-factor_i ‐ Sub-factor_Min) / (Sub-factor_Max ‐ Sub-factor_Min)

where:

• Sub-factor_i: represents the original data for country i.
• Sub-factor_Max: represents the upper bounds for the corresponding data set.
• Sub-factor_Min: represents the lower bounds for the corresponding data set.
• Sub-factor Score_i: represents the computed sub-factor score for country i.

Sources: The Index relies on the most recent available versions of the following sources in assessing judicial effectiveness: Freedom House, Freedom in the World, and World Bank, Worldwide Governance Indicators.

Government Integrity

Corruption erodes economic freedom by introducing insecurity and coercion into economic relations. Of greatest concern is the systemic corruption of government institutions and decision-making by such practices as bribery, extortion, nepotism, cronyism, patronage, embezzlement, and graft. The lack of government integrity that such practices cause reduces public trust and economic vitality by increasing the costs of economic activity.

The score for this component is derived by averaging scores for three equally weighted sub-factors:

• Perceptions of corruption,
• Bribery risk, and
• Control of corruption including “capture” of the state by elites and private interests.

Each sub-factor is converted to a scale of 0 to 100 using the following equation:

Sub-factor Score_i = 100 x (Sub-factor_Max ‐ Sub-factor_i) / (Sub-factor_Max ‐ Sub-factor_Min)2

where:

• Sub-factor_i: represents the original data for country i.
• Sub-factor_Max: represents the upper bounds for the corresponding data set.
• Sub-factorSDGs, Targets, and Indicators

  SDGs Addressed in the Article

  1. SDG 16: Peace, Justice and Strong Institutions
  2. SDG 8: Decent Work and Economic Growth
  3. SDG 10: Reduced Inequalities

  Targets and Indicators Identified

  SDG 16: Peace, Justice and Strong Institutions

  • Target 16.3: Promote the rule of law at the national and international levels and ensure equal access to justice for all.
    • Indicator: Rule of law component score in the Index of Economic Freedom.
  • Target 16.5: Substantially reduce corruption and bribery in all their forms.
    • Indicator: Government integrity component score in the Index of Economic Freedom.

  SDG 8: Decent Work and Economic Growth

  • Target 8.2: Achieve higher levels of economic productivity through diversification, technological upgrading, and innovation.
    • Indicator: Regulatory efficiency component score in the Index of Economic Freedom.

  SDG 10: Reduced Inequalities

  • Target 10.4: Adopt policies, especially fiscal, wage, and social protection policies, and progressively achieve greater equality.
    • Indicator: Government size component score in the Index of Economic Freedom.

  Table: SDGs, Targets, and Indicators

  SDGs	Targets	Indicators
  SDG 16: Peace, Justice and Strong Institutions	Target 16.3: Promote the rule of law at the national and international levels and ensure equal access to justice for all.	Rule of law component score in the Index of Economic Freedom.
  SDG 16: Peace, Justice and Strong Institutions	Target 16.5: Substantially reduce corruption and bribery in all their forms.	Government integrity component score in the Index of Economic Freedom.
  	SDG 8: Decent Work and Economic Growth	Target 8.2: Achieve higher levels of economic productivity through diversification, technological upgrading, and innovation.	Regulatory efficiency component score in the Index of Economic Freedom.
  SDG 10: Reduced Inequalities	Target 10.4: Adopt policies, especially fiscal, wage, and social protection policies, and progressively achieve greater equality.	Government size component score in the Index of Economic Freedom.

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  Fuente: heritage.org

   

  

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