**1. Introduction**

Numerous empirical studies [1] pretend to show that Economic Freedom (EF) favours economic growth, prosperity, poverty reduction, and has many other beneficial effects, beside being also a necessary condition for the development of democracy. However, before proposing modern theories of Economic Freedom, it seems that one should first wonder about the EF definition, and have proofs that Economic Freedom exists. The goal of this paper is to study the world EF situation before the recent (21st century) economic crisis. A second paper is intended for later years as explained below. In brief, this is due to different definitions and changes in geo-political economic conditions. It is expected that the paper can be useful for econo-physicists and other researchers, due to the somewhat original approach, more numerical, i.e., along the lines of econophysics thought.

The oldest of these publications, *The Wealth of Nations* by Adam Smith in 1776, shows that the preservation of individual freedom to pursue their own interests is due to the necessity of creating a social and more prosperous civilisation [2]. On the other hand, protectionism and trade performed under a monopoly (like that of the British empire at

**Citation:** Ausloos, M.; Bronlet, P. Economic Freedom: The Top, the Bottom, and the Reality. I. 1997–2007. *Entropy* **2022**, *24*, 38. https://doi.org/ 10.3390/e24010038

Academic Editors: Ryszard Kutner, H. Eugene Stanley and Christophe Schinckus

Received: 28 November 2021 Accepted: 20 December 2021 Published: 25 December 2021

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**Copyright:** © 2021 by the authors. Licensee MDPI, Basel, Switzerland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (https:// creativecommons.org/licenses/by/ 4.0/).

the time of Adam Smith) serves the purpose of preserving the status quo and privileging a handful of elites. Frederic Bastiat shows, in *Economics Harmonies* [3], that all human actions lead to care and harmony if these actions are motivated by private considerations. Thus, Bastiat recommends, or even advocates, "liberty" [4], in our own words, EF contains so much creativity that it leads to many opportunities for bettering human life.

But what is "Economic Freedom" (EF)? A simple definition among many similarly proposed by others may be as follows: The freedom of the economy is the freedom to produce, exchange and consume any goods and services acquired without use force, fraud, or theft.

In order to have a more complete appraisal of EF, one might consider James Gwartney and Robert Lawson's article [5]. Gwartney and Lawson do not give a proper term for economic freedom, but claim to provide all the conditions to be met in order to obtain "economic freedom": in brief, the foundations of any "economic freedom" is respect for the "rule of law", of property and privacy, i.e., "right to own", and demands freedom for agents wishing to enter into contracts, i.e., "freedom to contract". Thus, before, measuring EF and discussing such measures, let us briefly examine the framework in the following three subsections.

#### *1.1. Rule of Law*

Many theoreticians of economic liberalism maintain that the aim of the prerequisites for EF is the establishment of a rule of law; e.g., [6]. A "rule of law" (*"Etat de droit"*) is an institutional system in which the governmen<sup>t</sup> and the individuals are subject to the law. This right shall apply in an identical way to each individual and to all economic agents.

This principle of equality of individuals before the law is the guarantee that the fundamental rights of citizens will not be violated by those in power. It also excludes any form of privilege, i.e., the application of the law with the purpose of favouring one group of people over another. It restricts also any arbitrary application of the law. Otherwise, one of these "misactions" would lead to a restriction of economic freedom.

#### *1.2. The Right to Own*

The second prerequisite for EF is the respect of the individual rights to own property. To achieve this, a system must be established which ensures the right to use (*usus*) and to profit (*f ructus*) from this property. The system shall also ensure the right to transfer this property to another person as long as they are both consenting.

These fundamental rights are the guarantees that individuals will be able to be autonomous and will have the opportunity to seek to achieve their own goals. Many economists, such as Milton Friedman [7,8] or Murray Rothbard [9,10], consider the right of ownership as the most fundamental of the rights, of all other rights. It guarantees individuals to have individual freedom and allows for better personal development than otherwise, under a regime of coercion. It also reduces uncertainty and encourages investment by creating favourable conditions for economic development.

Empirical studies [11] show that countries with a right to own have an economic growth rate almost twice larger than countries where this right is not respected. According to (the Peruvian economist) Hernando de Soto [12], a large part of the poverty in third world countries is caused by the system's lack of favouring some equality and by the absence of a right of ownership.

#### *1.3. Freedom to Contract*

A contract is an agreemen<sup>t</sup> between two or more parties, having the purpose of establishing obligations at the expense of each of those parts. The freedom to contract contains therefore the right to choose the parties with which the contract is formed and to agree on the content of this contract (what to give, to do, or not to do). The parties have the right to choose the subject of the contract, but once the contract has been made, they are obliged to fulfil the terms of the contract.

The main economic function of contracts is to transfer rights of one individual's property to another person.

#### *1.4. Other Definitions of Economic Freedom*

The Gwartney and Lawson definition [5] is an ideal one, but accepted by classic liberal economists. It is intimately linked to a respect for the law which in so doing protects individuals against external aggression that would aim to take ownership of their property. This definition is valid only in a "non-negative legal context".

There are many other definitions of EF but none is unanimously accepted. Examples of "economic freedom" in a "positive law context" are given by Amartya Sen [13]; Amartya Sen argues for an understanding of freedom in terms of capacity of an individual to achieve his/her own goals. Notice that in a similar line of thought, Goodin, Rice, Parpo, and Eriksson [14] propose to measure "freedom", even outside financial or economic considerations, from the available time that people have in participating in an activity so chosen by them.

#### *1.5. Paper Content*

However, before a theory of economic freedom is proposed, should one not first have proofs of where and when economic freedom exists? In fact, these questions demand a study of other highly fundamental research questions, in particular about the measurement(s) of economic freedom(s?) themselves, and on the meaning of the measures (so called "indices"). Immediately tied to the former and the latter, the correlations with other socio-economic measures should be considered in order to provide stylised data for some preparation of modelling, later on with determinants or/and components. These are huge challenges having led to a vast literature.

Thus, even though the literature is enormous, on many aspects, we have only considered some, in our opinion, very elementary but fundamental, ground level basis, accepting two types of measures, explicitly defined in Section 2: the Economic Freedom of the World (EFW) index and the Index of Economic Freedom (IEF). We have examined 908 data points for the EFW index and 1884 points for the IEF; the studied periods cover 2000–2006 and 1997–2007, respectively, thereby following the 9 November 1989 Berlin wall collapse and including 11 September 2001. Notice that we presently exclude the 2008 financial crisis, and the following years, due to recent economic, geopolitical, changes, and because a new definition of the IEF was recently implemented. Some further work is intended over the more recent period (to be paper II.) in order to provide a complementary analysis. Paper II will also contrast the findings, whence prompting any dynamic aspect.

In order to compare the indices, one needs to study their overlap in time and space. That leaves 138 countries to be examined over a period extending from 2000 to 2006, thus 2 sets of 862 data points. Since each country presents a combination of freedoms, and restrictions to freedoms, it is of interest to observe whether the country ranking contains or hides such a variety of dimensions. Due to the aimed scope of this paper, we will only consider the most often admitted primary determinant of a country's economic growth (EG), i.e., the country's Gross Domestic Product (GDP).

Thus, our data analysis pertains to the rank-size law technique. It is going to be examined whether the measures of EF have a statistical distribution which follows either an exponential or a power law. This is a sort of research question not considered in the classical realms of economics, but should be of interest in econophysics. A correlation with the country's gross domestic product (GDP) follows, distinguishing regional aspects, i.e., defining 6 continents.

The table of contents of this paper may be as follows:

In Section 2, we recall the definition and content of the Economic Freedom of the World (EFW) Index and the Index of Economic Freedom (IEF), respectively.

In Section 3, we present the extracted data, i.e., 908 data points for the EFW index and 1883 for the IEF on the studied periods, 2000–2006 and 1997–2007, respectively.

In Section 4, we provide the empirical laws, on one hand, the rank-size laws for both indices, plus, on the other hand, the (regression) relationship between such indices and the gross domestic product of the countries of interest. We also provide a study of regional aspects through a grouping of countries according to their geographic positions.

In Section 5, we provide conclusions pointing to the weak evolution of indices over the considered time interval. We sugges<sup>t</sup> lines for further research.

#### **2. Economic Freedom Indices**

We position our paper within the scholarly contributions having investigated, on one hand "measures of Economic Freedom" in modern times, and the link between EF and EG. Our article explores this possibility by means of a regional analysis, which we conduct on two indicators. Let us summarise the literature from such points of view.

#### *2.1. Economic Measures*

2.1.1. Economic Freedom of the World (EFW) Index

The Economic Freedom of the World (EFW) Index, published by the Fraser Institute [15], is the result of a project spanning 20 years. It was developed after a set of conferences given by Milton Friedman and Michael Walker between 1986 and 1994, in a project gathering more than 60 of the greatest economists of the time [16]. The aim was to create a ("strong") base with quantifiable and objective data following a transparent procedure. Thus, anyone could use the index, whatever their goals and political ideals.

The EFW index measures the degree of economic freedom in 5 major "areas":


For each of these 5 domains, several variables are measured, resulting in a set of 21 components included in the index. Each component is placed on a scale going from 0 to 10. The value 0 refers to zero freedom while the value 10 represents total freedom. Once these components are quantified, they are averaged in order to obtain the index value.

Several methods have been studied for doing such an average: without being exhaustive, one considers the weight equivalent to each component; another gives an inversely proportional weight to the standard error of the distribution of the component in the various studied countries. A third method calls upon a panel of economists who estimate the weight that each component must have; the final weight being the average weight obtained from the panel members' appraisals. A fourth method uses the primary component analysis technique to determine each weight. This latter method has the advantage of reducing the importance of anomalies (outliers) in estimating correlations between the components.

Since none of these methods is really satisfactory (from our investigations, the index does not seem to be very sensitive to changes in weight), the weight choice is not further discussed, and taken as the most simple one. Thus, an equal weight for each component is chosen in the forthcoming analysis here below. The index, so constructed, provides a value between 0 and 10 for each country. A country with an index value close to 10 is a country where "economic freedom" is "very large". A country with a value close to 0 is a country where EF is "non-existent".

Of course, it is expected that each country presents a "combination of freedoms". Recently, Lawson et al. [17] have reviewed the determinants of EF, with a time dependent point of view. Some of the most consistent findings are that current levels of EF are strongly correlated with past levels. Lawson et al. deduce that freer countries have more difficulty continuing to improve their economic freedom.

2.1.2. Index of Economic Freedom (IEF)

Another measure of economic freedom, published by the Heritage Foundation [18] and the Wall Street Journal [19], is the Index of Economic Freedom (IEF), which was initiated in 1995 [20].

The index was built on a set of 10 specific components [21]:


Some of these components are the results of an assembly of additional measures. Each of these components is measured on a scale of 0 to 100. The value 100 represents the maximum freedom. The index was obtained in averaging these 10 components (with an equal weight for each of them).

Notice that more recently, Dialga and Vallée [22] dealt with "methodological issues in the Index of Economic Freedom", indicating that two components, "1. Tax Freedom" and "Government Spending", which define the "2. Government Size" pillar, are negatively correlated to the other "pillars", whence making the index very unstable and thus impairing the country ranking.

#### *2.2. Economic Growth*

Most empirical studies, e.g., [23–27] provide evidence that economic freedom, as measured by the Economic Freedom of the World Index, is related to economic growth, income, standard of living, low corruption, etc. Much evidence shows that economic freedom leads to economic growth even where countries have limited political freedom [28–30]. The reverse is not true. The case of IEF is less studied [31]. In most cases, the question turns upon the level of importance of the various independent variables.

One of the first papers that explored the relationship between EF and growth was by Islam [32]. The first study concerning the analysis of the link between different components of EF and economic growth seems due to Ayal and Karras [25]. However identifying which aspects of EF are more conducive to growth has proven difficult, due to multicollinearity among the index areas [33]. Due to the more basic aim of our paper, we will not discuss any further regression models nor (Granger) causality in the freedom–growth relationship, here, whence reducing to a somewhat limited literature review. Nevertheless, for some completeness, let us point out a few papers, either considering EF–EG from the EFW [34,35] or the IEF [31] point of view.
