Thursday, September 13, 2007

Economic Growth Vs Economic Freedom

What is more important to a country (and its people) - Economic Growth or Economic Freedom?
Economic freedom is an index composed of the following factors
  • Business Freedom
  • Trade Freedom
  • Monetary Freedom
  • Freedom from Government
  • Fiscal Freedom
  • Property Rights
  • Investment Freedom
  • Financial Freedom
  • Freedom from Corruption
  • Labor Freedom

whereas Economic growth is measured in terms of rise in GDP.

India ranked 121 during 2006, well behind its neighbors Pakistan and Sri Lanka but India ranks 4th in terms of economic growth for the same time period.

The term "freedom" is wide open to interpretation but India definitely needs to address its freedom to corruption !!!


sharath said...

Even in terms of economic growth, if we look at GDP per capita ($700), we are pretty much beyond rank 100. So its not like we are doing getting growth by sacrificing freedom.

Likely the higher economic freedoms in post 90s have helped growth.

Supreeth Kini said...

Per Capita GDP might not be a true indicator of economic growth since it does not factor for cost of living and exchange rates. Also due to the huge population, both China and India fall beyond 100 in this ranking

Sharath said...

"Also due to the huge population, both China and India fall beyond 100 in this ranking"

Yes, the huge population rightly brings down the per capita. That is how it should be, cos afterall one can argue that you have so many people, but you still can't have a big enough GDP, which really means extremely low productivity, which really is a measure of standard of living.

And ofcourse, China is not a rich country either going by standard of living. With 4 times population of US, it has one sixth GDP (nominal).

Another measure of per capita would be if you can take the GDP in purchasing power parity (PPP) which makes India 4th (rather than nominal - which makes India 12th) and divide by population to get the per capita GDP. That takes into account the cost of living (and gives India per capita of I think $ 2400 )

But either way, taking a median rather than average per capita would be more realistic since it is not affected by the super-rich.