In an effort to pinpoint countries around the world that offer the greatest economic freedom, each year conservative think tank Heritage Foundation in Washington, DC, together with newspaper The Wall Street Journal, release an Index of Economic Freedom. While the editors of the index claim that this year’s findings indicate that economic freedom is “once again on the rise”, Heritage ambassador, director of the centre for data analysis and director of the centre for trade and economics, Terry Miller, told fDi Magazine that economic freedom does not flourish in situations of conflict or political instability. “The index includes measures of rule of law that declined in 2014,” he said.
Mr Miller also maintained that conflict in the Middle East has brought the advancement of economic freedom in that region to a halt. “The increasing aggressiveness of Russia, particularly in Ukraine, and the resulting economic sanctions and threats to energy supplies in Europe, have increased anxiety and uncertainty, both of which have a negative impact on investment.”
He reported that even an economy such as Hong Kong, which occupies the top spot in the index, is under threat, as Chinese resistance to democratisation efforts undermines confidence in the basic law and creates uncertainty as to the extent Hong Kong’s economic freedoms will be maintained in the future.
The 2014 index ranked 178 countries; 114 improved their scores on last year, including Singapore and Sweden, which achieved their highest ever scores. The index indicated, however, that some 4.5 billion people continue to live in economically “unfree” countries. That is 65% of the world’s population.
Mr Miller says that uncertainty is the enemy of FDI. “The exceedingly high risk premiums that must be incorporated into investment calculations in situations of actual or potential conflict greatly reduce the potential profitability of FDI and may shut it off entirely,” he said.