Why Indexes of Economic Freedom Cannot Be Sufficient Indicators of Economic Freedom and Future Economic Prosperity?

Abstract

Long term economic growth depends on the institutional setting for economic activity. Sustainable long term growth emerges from institutions which sustain freedom. Quality of the institutional framework can be explored through the index of economic freedom in order to bring closer the relationship between economic freedom and economic prosperity. An outline of empirical and theoretical investigation shows that economic freedom could be an important precondition for economic prosperity. However, there are many reasons why the relationship between economic freedom and economic performance could be sometimes weaker and less significant than the prediction of economic theory. The main reason lies in the fact that indexes of economic freedom presented so far tend to suffer from certain deficiencies with regard to their methodology and content and may therefore lead to insufficient or even wrong economic policy conclusions. As such they cannot be, neither a sufficient indicator of economic freedom itself, either of future economic prosperity.

Keywords: economic freedom, indexes of economic freedom