[The Heritage Foundation Index of Economic Freedom versus the Austrian Index of Economic Freedom]

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Acknowledgement

I would take this opportunity to thank my research supervisor, family and friends for their support and guidance without which this research would not have been possible.

DECLARATION

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Abstract

The purpose of the research is to create an index of economic freedom using Austrian economic analysis, and to expound the benefits of such an index over the Heritage Foundation' s Index. The Heritage Foundation Index of Economic Freedom is truly the only game in town for what it does, namely, measuring economic freedom of all countries on the planet. The Heritage Foundation however, uses faulty analysis and statistics that do not reflect the true nature of a country's economic freedom. The thesis is to create an index of economic freedom using Austrian economic analysis, and to expound the benefits of such an index over the Heritage Foundation's Index. The research is based on qualitative secondary research. The overall task is to create my own index of economic freedom using Austrian economic analysis, and to expound the benefits of such an index over the Heritage Foundation's Index.

Table of Contents

CHAPTER 1: INTRODUCTION1

Background of the study1

Problem Statement2

Purpose of the Study3

Significance of the Study3

Rationale of the Study4

CHAPTER 2: LITERATURE REVIEW6

CHAPTER 3: METHODOLOGY17

Introduction17

Research Design17

Literature Search18

Keywords18

CHAPTER 4: DISCUSSION AND ANALYSIS19

CHAPTER 5: CONCLUSION26

WORKS CITED28

Chapter 1: Introduction

Background of the study

The notion of economic freedom is not new in economic theory. The concept of economic freedom provides a basis for arguing that differences in institutions explain differences in economic performance across nations. Several schools of thought, like neo-institutional economics and public choice, examine the link between economic freedom and economic performance. (Barro: 45-61) Examining economic freedom in a country means examining government regulations, black market activities, rent-seeking activities, and the enforcement of private property rights. These country characteristics are even used in econometric studies as proxies for economic freedom . The importance of this concept has given rise to several attempts to quantify economic freedom. (de Soto: 105-109)

Recently, three indices; the Fraser Institute index of Gwartney, Lawson, and Block (1996), the Freedom House index in the work edited by Messick (1996), and the Heritage Foundation-Wall Street Journal index of Johnson, Holmes, and Kirkpatrick (1998) have been developed to measure economic freedom. Out of these three indices, the Heritage Foundation Index is considered to be the best and in actual a fault index for measuring economic feedom for all countries. (Gwartney: 163-190)

In the 16th Index of Economic Freedom, released today, Australia's economy was ranked the third most free behind Hong Kong and Singapore among 179 countries graded in the Index. Australia scored 82.6, out of an ideal 100, which also equated to third out of 41 countries in the Asia-Pacific ...