Economic Freedom: The Top, the Bottom, and the Reality. I. 1997-2007

Area of Science:

• Economics
• Econometrics
• Political Economy

Background:

• Economic Freedom (EF) is a key concept in economic and political studies.
• Existing indices like the Economic Freedom of the World (EFW) and the Index of Economic Freedom (IEF) measure EF.
• Comparative analysis of these indices is crucial for understanding their distinct contributions.

Purpose of the Study:

• To compare the Economic Freedom of the World (EFW) index and the Index of Economic Freedom (IEF).
• To analyze the distributional properties of these indices using the rank-size law technique.
• To investigate the relationship between economic freedom indices and Gross Domestic Product (GDP) across different regions.

Main Methods:

• Analysis of 908 data points for EFW (2000-2006) and 1884 data points for IEF (1997-2007).
• Application of the rank-size law technique to examine exponential and power-law distributions.
• Correlation analysis with country GDP, segmented by 6 continents.
• Utilized semi-log and log-log plots for data visualization and analysis.

Main Results:

• EFW-rank relationship shows exponential behavior for high ranks (≥20) and approximates a power law overall.
• IEF ranking exhibits exponential behavior, with log-log plots indicating a transition between two power laws near rank 10.
• EFW-GDP relationship follows a stable power law (γ≃0.674) over time.
• IEF-GDP relationship demonstrates a downward evolutive power law over time.

Conclusions:

• The EFW and IEF indices capture different dimensions of Economic Freedom.
• Rank-size law analysis reveals distinct statistical properties for each index.
• The relationship between economic freedom and GDP varies significantly between the two indices and evolves differently over time.