Measuring economic freedom: an alternative functional specification and subsequent ranking

ABSTRACT

The widely cited Economic Freedom of the World index is an aggregate measure of economic freedom calculated by using a simple arithmetic mean of scores over five sub-dimensions: (1) size of government, (2) legal structure and security of property rights, (3) access to sound money, (4) freedom to trade internationally and (5) regulation of credit, labour and business. The use of a simple arithmetic mean implicitly assumes that the different sub-dimensions are ‘perfect substitutes’. To explore the implications of this assumption, we compute an aggregate economic freedom score and ordinal ranking of countries, by taking a geometric mean of the five sub-dimensions. For this alternative specification, the marginal impact of each sub-dimension on the aggregate score is no longer independent of the other sub-dimension scores. Consequently, countries with inconsistent levels of economic freedom across sub-dimensions are ‘punished’ to a greater degree than are countries with less variability across sub-dimensions. Our alternative specification results in considerable movement in terms of country rankings. The geometric mean measure does not appear to explain economic growth as well as the arithmetic mean measure.     

Negative Synergy: A Macro Perspective For Environmental Issues

Synergistic conditions result in situations where the whole is greater than the sum of its parts. The corollary, negative synergy, exists whenever the reverse is true: the whole is less than the sum of its parts. Research here examines one such case—ecological negative synergy or overstress. Ecological negative synergy results from placing more demand on the environment than it can process within the capability of restorative powers. Ultimately, the negative synergistic effect results in less productive or a permanently unproductive environment. In reality, the effect is worse than that expected from the simple sum of these separate elements. Three ecological disasters are to be examined. The first looks at the Sudan where overgrazing, overpopulation, poor soil conditions, and drought result in a situation where the result is much worse than the sum of the individual crisises being experienced in the region. The second considers the work by Nobel Piece Prize recipient Wangari Maathai and her studies of farms and forests in Kenya. The third reviews the devastation in New Orleans caused by a combination of failed dikes, high winds, torrential rains, and damaged wetlands.