Economic Freedom and Human Development go together too

I was thinking of following up on my recent post on globalisation by examining the relationship between economic freedom and quality of life when Raj Cherubal commented that economic freedom and human development are correlated too. I used data from the United Nation’s Human Development Index 2003 and the Heritage Foundation’s Economic Freedom Index 2003 to generate this chart. (click on the picture to see it enlarged):
Human Development vs Economic Freedom
The trend clearly points out that there indeed is a positive correlation between human development and economic freedom. Hong Kong and Singapore join Scandinavia and western Europe in being furthest along the curve, yet they lie just below the trend line – implying there these countries still is some way to go in terms of human development. Japan seems to have the highest human development in Asia, but its economy is not as free as Singapore or Hong Kong.

At the other end of the spectrum, China has greater human development than India but the latter has a greater economic freedom. This could be one reason why some commentators have argued that India’s growth is less dependent on FDI as it is fuelled by domestic entrepreneurship. This chart should convince those looking for the magic mantra to improve the lot of the ‘teeming millions’ that the answer is economic freedom – open up the economy, get the state out of business, encourage entrepreneurship and investment. Higher economic freedom could be one reason why El Salvador and Botswana have higher levels of human development than their regional counterparts.

Interestingly, Libya, Argentina, Cuba and Belarus have relatively higher levels of human development although their economic freedoms are comparable to China and India. I’m guessing that Libya, Argentina and Belarus are resource rich with low population, while Cuba’s population was well supported by the Soviet economy as a living communist brochure to the folks across the Miami Bay.

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