While the economic growth of acountry can be measured by the increase in a country’s gross domestic productor gross national product, the economic development is more difficult todetermine.
However similar the terms might sound, the metrics gauge differentaspects of a country’s economic performance. Economic development is acontinuous process that involves a rise in a country’s real level of nationaloutput as well as other factors that lead to economic growth. In short, economicgrowth measures the short-term performance of a country, whereas economicdevelopment is a broader concept that gauges the socio-economic aspect of the economy.The human development index is often used to gauge development, but it onlyaccounts for education, income, and life expectancy index; many othercomponents are being overlooked. The Economic Freedom of the World Index (EFW index)is a more inclusive measurement that provides further insight into a country’seconomic development. Accordingto the Economic Freedom of the World(2017 Annual Report), economic freedom is the right for individuals tochoose how their time and talents are spent; on the other hand, individuals donot have the right to take the resources of others. Economic freedom isimportant, as individuals get to decide on the type of goods and services to produce,rather than being forced to produce through political process, violence, theft,or fraud by others (Page 1).
The EFW index measures the degree of economicfreedom based on five major areas for the 159 countries participating in theproject. First being the size of the government, second being legal system andproperty rights, third being sound money, fourth being freedom to trade, and regulationof credit, labor, and business being the last. Ratings for each of the majorareas are derived from averaging over 24 components and 42 variables that areplaced on a scale of 0 to 10 to reflect the underlying data. Countries are separated into four quartiles to presentthe results, and the average rating is spread out over a long time span, as economicfreedom is felt over an extended time period.
Countries that have the most freedomalso boast the highest income per capita and income earned by the poorest 10%at $42,463 and $11,998 respectively, economic growth at 3.35%, life expectancyat 80.7 years, political rights and civil liberties at 1.
7 and 1.6 respectively(measured on a scale of 1 to 7 with 1 being the highest), gender equalitybetween men and women at 0.139 (measured on a scale of 0 to 1 with 1 being themost inequality experienced by one gender), and UN World Happiness Index at 6.70 (measuredon a scale of 1 to 10 with 10 being the happiest).
The countries with the mosteconomic freedom also have the least percentage of population earning $1.90 and$3.10 per day, which are classified as extreme and moderate poverty by thereport. The lack of correlation between the share of income earned by thepoorest 10% of the population and the economic freedom might be the mostintriguing finding. Based on the annual report, a correlation between highereconomic freedom and higher economic development is spotted, which isconsistent with Hossain’s findings in 2016. Hossain discovers a positive relationshipamong economic freedom, foreign direct investment (FDI), and economic growth indeveloping countries. Higher economic freedom boosts foreign entrepreneurs’confidence to invest, which stimulates developing countries’ economiccompetitiveness. Though the result of thereport is supported by Hossain’s article, more elements could be included togauge the economic development of different countries from even more economicaspects.