Economic freedom is the activity autonomy of economic subjects in pursuit of a livelihood. Everyone has the right to pursue their dreams through free choice and to control the fruits of his labor and creation. Government decisions are open and transparent. Individuals have equal or non-discriminatory opportunities, and success or failure depends on their own abilities and efforts. People’s economic decisions are fully decentralized, allocating resources in free, open markets and playing fair.
The EFW (Economic Freedom of the World) index was constructed on 3 principles, objective components, unbiased result and completely transparent process. Including five major areas, “Area 1: Size of Government, Area 2: Legal System and Property Rights, Area 3: Sound Money, Area 4: Freedom to Trade Internationally and Area 5: Regulation.” (Economic Freedom of the World, 2017, p.3-p.5) There is an interesting pattern between data, High-income industrial economies generally rank quite high for the legal system and property right, sound money and freedom to trade internationally. but lower in the size of government and regulation, particularly the regulation of labor markets. A country only has a reasonable size of government is not sufficient to ensure economic freedom, other factors are also necessarily required. But a country that ranks low in the legal system tends to lower the country’s ranking in international free trade, even if they have a sound currency.
In recent years, the growth of economic freedom in developing countries is faster than that of high-income industrialized countries and tend to have more economic freedom. The gap between the EFW index and developing economies in high-income countries has been narrowing. Based on the average EFW summary rating developing economies are growing faster compared to the high-income developed economies, mainly driven by sound money and freedom to trade internationally. According to the research (Sala-i-Martin, 2006; Pinkovskiy and Sala-i-Martin, 2009), income inequality and poverty rate in the world have improved, forming two trends. Poverty rates in developing countries are falling, and per-capita GDP growth in developing countries is faster than in high-income developed countries. Some research has carried on the detailed analysis of the relationship between income and economic freedom (Hall and Lawson, 2014) and, almost without exception, found that countries with higher degrees of economic freedom induce their economies to grow faster, and their per-capita GDP has reached a higher level.
A large number of data analysis shows that countries with higher economic freedom have higher per-capita incomes, faster development, and little extreme or moderate poverty. Such countries tend to have more political and civil liberties, thus greater economic freedom. Men and women are treated equally, people are more satisfied with their lives and life expectancy is about 20 years longer than with the least economic freedom countries.
Economic freedom means that the main body of economic activities can carry out economic activities according to their own will and bear corresponding consequences. It means that the government does not intervene or protect free competition, free market, free choice, free trade and private property within the constitution. Economic freedom is essential to protect the individual rights of market subjects, which is an important content of freedom. Economic freedom is not necessarily sufficient, but it is a necessary condition to achieve individual freedom and sufficient foundation for individual rights.