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| What is the relationship between economic freedom and corruption? The simplest answer is that the lower the level of corruption, the higher is the corresponding level of economic freedom. Yet each of these factors depends on a series of other considerations, among them the degree of transparency in economic, financial, and political transactions, and the level and enforcement of individual physical and intellectual property rights, among others. In turn, how governments set incentives to either encourage or discourage rent-seeking behavior also bear importantly on the degree of corruption and economic freedom. Democratic institutions such as regular elections based on a broadly franchised population also are important to economic freedom and corruption, as is the presence of an independent press and judiciary, and adherence by government to the rule of law under a civil society. In addition, a country's level of economic well-being depends, in addition to the level of economic freedom, corruption, and the level of per capita income, on the distribution of income as well as on other socio-economic indicators. While all of these considerations correlate significantly with a country's level of per capita income, they do not present a strictly determined conditional sequence for success, a fact that lies as much with a country's historical experience and cultural values as it does with the weight of statistical evidence that social scientists can bring to bear. |
Source: The World Bank, World Development Report 1997; Transparency International, The Corruption Perceptions Index.
| Corruption Ranking | PPP GNP Per Capita | Index of Economic Freedom | |
| Nigeria | 1 | 1220 | 3.4 |
| China | 2 | 2920 | 2.5 |
| India | 3 | 1400 | 2.6 |
| Cameroon | 5 | 2110 | 3 |
| Pakistan | 6 | 2230 | 3.6 |
| Venezuela | 7 | 7900 | 3 |
| Kenya | 8 | 1380 | 3.9 |
| Russia | 9 | 4480 | 3.1 |
| Colombia | 10 | 6130 | 4 |
| Egypt | 11 | 3820 | 3.3 |
| Ecuador | 12 | 4220 | 4.1 |
| Brazil | 13 | 5400 | 3.3 |
| Poland | 14 | 5440 | 4.1 |
| Hungary | 15 | 6410 | 4.2 |
| South Africa | 17 | 5030 | 4.2 |
| Indonesia | 18 | 3800 | 4.3 |
| Uganda | 19 | 1470 | 4.4 |
| Turkey | 20 | 5580 | 4.4 |
| Israel | 21 | 16490 | 4.4 |
| Jordan | 22 | 4060 | 4.5 |
| Philippines | 23 | 2850 | 4.7 |
| Bolivia | 24 | 2540 | 4.7 |
| Argentina | 25 | 8310 | 4.8 |
| Thailand | 31 | 7540 | 5.2 |
| Malaysia | 32 | 9020 | 5.2 |
| South Korea | 34 | 11450 | 5.4 |
| Czech Republic | 38 | 9770 | 5.6 |
| Chile | 40 | 9520 | 5.7 |
| Japan | 44 | 22110 | 5.9 |
| Bangladesh | 46 | 1380 | 6 |
| Singapore | 52 | 22770 | 7.4 |
| Hong Kong | 53 | 22950 | 7.5 |
| Australia | 45 | 18940 | 5.9 |
| New Zealand | 51 | 16360 | 6.5 |
| Mexico | 4 | 6400 | 3.5 |
| Canada | 43 | 21130 | 5.8 |
| U.S. | 49 | 26980 | 6.2 |
| Greece | 16 | 11710 | 4.2 |
| Portugal | 26 | 12670 | 4.8 |
| Italy | 27 | 19870 | 5 |
| Spain | 28 | 14520 | 5 |
| France | 29 | 21030 | 5 |
| Sweden | 30 | 18540 | 5.1 |
| Norway | 33 | 21940 | 5.3 |
| Germany | 35 | 20070 | 5.4 |
| Finland | 36 | 17760 | 5.5 |
| Denmark | 37 | 21230 | 5.5 |
| Netherlands | 39 | 19950 | 5.6 |
| Austria | 41 | 21250 | 5.7 |
| Belgium | 42 | 21660 | 5.8 |
| Ireland | 47 | 15680 | 6 |
| Britain | 48 | 19260 | 6.1 |
| Switzerland | 50 | 25860 | 6.2 |
| Medians: | $9,520 | 5 |
| The Economic Freedom index is based on an unweighted average of 10 factors, based on a compilation of 50 independent variables. | |
| The ten factors, and the variables associated with each, are listed below. | |
| Trade Policy | Average tariff re; nontariff barriers; corruption in the customs service |
| Taxation | Top income tax rate; tax rate applied to average income level; top corporate tax rate; other taxes |
| Government intervention | Gov.consumption %GDP; Gov.ownership of business/industry; Economic output of government |
| Monetary policy | Average inflation rate 1985-1995; average inflation rate for 1996 |
| Capital Flows & Foreign Investment | Foreign investment code; restrictions on foreign ownership; restrictions on industries open to foreign sector; restrictions on foreign companies; foreign ownership of land; equality of treatment under the law; restrictions on earnings repatriation; availa |
| Banking | Gov.ownership of banks; restrictions on foreign bank branching; Gov.influence on credit; govt.regs such as deposit insurance; freedom to sell range of financial services |
| Wage and Price Controls | Minimum wage laws; Freedom to set prices privately; gov.price controls; extent of gov.price control use; gov.subsidies to business that affect prices |
| Property rights | Freedom from gov.influence over judiciary; comm.code defining contracts; sanctioning of foreign arbitration; gov.expropriation of property; corruption within judiciary; delays in judicial decisions; legally granted and protected private property |
| Regulation | Licensing requirements to operate business; ease of obtaining a business licence; corruption in bureaucracy; labor regulations; environment,consumer safety, and worker health regulations; regulations that impose a burden on business |
| Black Market | Smuggling; piracy of intellectual property in black market; agri.production to black market; manufacturing supplied to black market; Services to black market; transportation to black market; labor supplied to black market |
Source: Bryan T. Johnson, Kim R. Holmes & Melanie Kirkpatrick, Index of Economic Freedom, 1998 (New York: Dow-Jones Publishing Company and the Heritage Foundation, 1998).
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Atkinson, Anthony B. Public Economics in Action: The Basic Income/Flat Tax Proposal (Oxford: The Clarendon Press, 1995, 1996). Barro, Robert J. . (Cambridge, Mass.: MIT PRess, 1997, 1998).Getting It Right :Markets and Choices in a Free Society Barro, Robert J. Determinants of Economic Growth: A Cross-Country Empirical Study (Cambridge, Mass.: MIT Press, 1997, 1998). Johnson, Bryan T., Kim R. Holmes & Melanie Kirkpatrick, 1998 Index of Economic Freedom. (New York: Dow-Jones Publishing Company andthe Heritage Foundation, 1998). Krugman, Paul. Development, Geography, and Economic Theory. (Cambridge, Mass.: MIT Press, 1995, 1997, 1998). Sen, Amartya. On Economic Inequality. (Oxford: The Clarendon Press, 1973, 1997). Transparency International. Index of Corruption. (Geneva, Switzerland: Transparency Inernational, 1998). UNDP. Human Development Report, 1998. (New York: Oxford University Press, 1998). World Bank. World Development Report, 1998. (New York: Oxford University Press, 1998). |
Last updated: 2/7/99
Phillip LeBel
e-mail: LeBelp@mail.montclair.edu