Armenia’s Index of Economic Freedom One of the Highest Among EaP Countries

• 03.23.2015, 11:28
•  Europe,  World,  Armenia,  Analytics

Index of economic freedom is the freedom of any individual to choose how to act and use its own resources, while respecting others’ rights.  The concept of economic freedom is an engine that drives prosperity in the world and shows why some societies prosper while others do not.

As it is written in the economicfreedom.org, economic freedom is important because it affects every aspect of an individual’s life. Living in a society where levels of economic freedom are high, it means to have higher incomes, lower poverty, less unemployment and better environments, among a host of other benefits.  Moreover economic freedom improves well-being and leads to a higher quality of life. In other words economic freedom is the fundamental right of every human to control his or her own labor and property. In an economically free society, individuals are free to work, produce, consume, and invest in any way they find better for them. The societies are economically free, when governments allow labor, capital, and goods to move freely.

 Economic freedom, as it is written in heritage.org, is strongly associated with healthier societies, poverty elimination, greater per capita wealth, human development, democracy, and cleaner environments.

Economic freedom is measured based on 10 quantitative factors, grouped into four broad categories.

1. Rule of Law (property rights, freedom from corruption);
2. Limited Government  (fiscal freedom, government spending);
3. Regulatory Efficiency (business freedom, labor freedom, monetary freedom);
4. Open Market (trade freedom, investment freedom, financial freedom).

In this regard it will be interesting to compare the Economic Freedom Indexes (IEF) among the EaP countries and see where Armenia stands.

 

Table 1 shows different indicators of economic freedom of the 6 EaP countries -Armenia, Azerbaijan, Belarus, Moldova, Ukraine and Georgia, each of which is graded on the scale of 0 to 100, where 100 means having the highest economic freedom. A country’s overall score is derived by the average of these ten economic freedom indicators. 

 

Table 1. 2015 IEF for EaP Countries

	Armenia	Azerbaijan	Belarus	Georgia	Moldova	Ukraine
World Rank	52	85	153	22	111	162
Overall Score	67.1	61.0	49.8	73.0	57.5	46.9
Property Rights	20.0	20.0	20.0	40.0	40.0	20.0
Freedom From Corruption	36.0	28.0	29.0	49.0	35.0	25.0
Government Spending	82.8	59.7	54.7	73.8	51.8	28.0
Fiscal Freedom	84.4	88.1	86.4	87.2	85.1	78.7
Business Freedom	82.7	74.5	72.0	88.6	66.8	59.3
Labor Freedom	64.3	79.1	80.1	79.9	40.06	48.2
Monetary Freedom	70.6	79.8	44.5	82.7	76.1	78.6
Trade Freedom	85.4	76.0	81.0	88.6	79.8	85.8
Investment Freedom	75.0	55.0	20.0	80.0	50.0	15.0
Financial Freedom	70.0	50.0	10.0	60.0	50.0	30.0

Source heritage.org

 

As it is shown in the Table 1, in 2015 Armenia is ranked the second place by its IEF after Georgia among EaP countries. The third place is Azerbaijan, the fourth is Moldova, then Belarus and Ukraine. The overall score of Armenia’s IEF is less by 5.9 point from Georgia and it is higher by 6.1 point from Azerbaijan.

The Property Right is almost equal for all of them, which is 20.0 point. It is very low score. It is only in Moldova and in Georgia that Property Right is 40.0 point. Freedom from Corruption also is lower than average, it is estimated 49 points for Georgia and 36 for Armenia, the lowest is for Ukraine - 25 point. Government Spending has the highest score for Armenia- 82.8 point, the second place is Georgia with 73.8 point, while in Azerbaijan it is only 59.7 point. Fiscal freedom is calculated to be the highest for Azerbaijan – 88.1 point and the second place is Armenia with 84.4 point. Business Freedom has the highest record in Georgia with 88.6 point, while Armenia is less by 5.9 point recording 82.7. Labor Freedom has the highest record in Georgia estimating 80.1 point. Monetary Freedom is 70.6 for Armenia, which is lower from those of Georgia by 12.1 point. Trade Freedom is quite high in Armenia – 85.4 point, which is less only by 3.2 point from Georgia, which is the first place in this ranking. Investment Freedom which is the most important sub index in terms of foreign countries to make decision where to invest, Armenia among EaP countries is the second place with 75.0 points that is higher than the average and which is lesser than Georgia by 5 points. In terms of Financial Freedom Armenia is the first place with 70.0 point, which is much more higher than the average of EaP countries. In this case Georgia is in the second place with 60.0 point and Azerbaijan is in the third place with 50.0 point before Belarus with 30 point and Ukraine with 10 point.

Overall, Armenia’s Index of Economic Freedom is quite higher among EaP 6 countries. It is called a Moderately Free country. The Armenian IEF is higher by 7.8 point than the average of EaP countries. It is a one more proof about better life and human rights respect in Armenia rather than in Azerbaijan, Moldova, Belarus and Ukraine. In terms of business life there are more possibilities for Armenia to be attractive for investments and partnership especially for EU countries. This becomes obvious when one looks at the indexes for fiscal freedom, business freedom and trade freedom that are ranked to be Free.