Sri Lanka and

Economic Freedom

October 2017
Fred McMahon
Fraser Institute
Thanks to:

Dhananath Fernando
Ravi Ratnasabapathy
Deane Jayamanne
What is Economic Freedom
Individuals have economic freedom when
property they acquire without the use of force,
fraud, or theft is protected from physical
invasions by others and they are free to use,
exchange, or give their property as long as
their actions do not violate the identical rights
of others. An index of economic freedom
should measure the extent to which rightly
acquired property is protected and individuals
are engaged in voluntary transactions.
James Gwartney et al. 1996
Components of the Economic
Freedom of the World Index

Size of government and taxation

Private property and the rule of law
Sound money
Trade regulation and tariffs
Regulation of business, labour and
capital markets
Why is Economic Freedom
Important?
Economic rights are fundamental rights in
the sense that without them there can be
no political freedom or civil freedoms
They are a prerequisite for growth and
development
They are a prerequisite for broader human
development
The impact on prosperity
and development
 Per Capita Income and Economic
Freedom Quartile
(constant 2011 international $), 2015
$42,000
$39,000
$36,000
$33,000
PPP constant 2011

$30,000
$27,000
international $

$24,000
$21,000
$18,000
$15,000
$12,000
$9,000
$6,000
$3,000
$0
Most Free 2nd Quartile 3rd Quartile Least Free
Quartile Quartile

Most Free . Least Free

 Per Capita GDP Growth

4.0%
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
Most Free 2nd Quartile 3rd Quartile Least Free
Quartile Quartile

Most Free . Least Free

Economic Freedom, the Poor, and
Inequality
Income Share of the Poorest 10% and
Economic Freedom
3.0%
2.5%
Percentage share of GDP

2.0%
1.5%
1.0%
0.5%
0.0%

Most Free 2nd 3rd Least Free

Quartile Quartile Quartile Quartile

Most Free . Least Free

Income of the Poorest 10% and
Economic Freedom
$12,000
$10,000
$8,000
$6,000
$4,000
$2,000
$0

Most Free 2nd Quartile 3rd Quartile Least Free

Quartile Quartile

Most Free . Least Free

Economic Freedom, Governance,
and Democracy
 Economic Freedom and Political Rights
6

5
Political Rights
(out of 10)

0
Most Free 2nd Quartile 3rd Quartile Least Free
Quartile Quartile
Most Free . Least Free
 Economic Freedom and Civil Rights

7.0

6.0

5.0
Civil Liberties
(out of 10)

4.0

3.0

2.0

1.0

0.0
Freest Quartile 2nd Quartile 3rd Quartile Least Free
Quartile
Most Free . Least Free
The impact of Economic Freedom on
other indicators of well-being
 Literacy (% of population)
Male Female

100

90

80

70

60

50
Most Free Quartile 2nd Quartile 3rd Quartile Least Free
Quartile

Most Free . Least Free

 Economic Freedom and
Life Satisfaction

7.0
6.5
Life Satisfaction

6.0
5.5
of of 10

5.0
4.5
4.0
3.5
3.0
Most Free 2nd Quartile 3rd Quartile Least Free
Quartile Quartile

Most Free . Least Free

 Some of the great
longer-term successes
 3
4
5
6
7
8
1970
1975
1980
1985
1990
1995
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Economic Freedom

2013
Chile
South America
 Per Capital GDP
$10,000

$9,000

$8,000

$7,000 Free Market

Reform
$6,000 South America
$5,000 Chile

$4,000

$3,000

$2,000
1970
1975
1980
1985

1995
2000
2001
2002
2003
2004
2005

2007
2008
2009
2010

2012
2013
1990

2006

2011
 5
6
7
8

5.5
6.5
7.5
8.5
9
1970
1975
1980
1985
1990
1995
2000
2001
2002
2003
2004
2005
2006
2007
Asia

2008
2009
2010
2011
2012
2013
Economic Freedom Scores

Singapore
Korea, South
Southeast Asia
 Per Capital GDP
$40,000

$35,000

$30,000

$25,000

$20,000 Southeast Asia

Korea, South
$15,000 Singapore

$10,000

$5,000

$0
1970

1980
1985
1990
1995
2000
2001

2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
1975

2002

2013
 Sub-Sahara Africa
Economic Freedom Scores
8

7.5

6.5
Botswana
6
Sub-sahara Africa
5.5

4.5
1980
1985
1990
1995
2000
2001
2002
2003

2005
2006

2008
2009
2010
2011
2012
2013
2004

2007
 Per Capital GDP
$8,000

$7,000

$6,000

$5,000

$4,000 Sub-Saharan Africa

$3,000 Botswana

$2,000

$1,000

$0
1960
1963
1966
1969
1972
1975
1978
1981
1984
1987
1990
1993
1996
1999
2002
2005
2008
2011
How Does Sri Lanka Do?
 4
5
6
8
9

7
1980
1985
1990
1995
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Economic Freedom Scores

India
Malaysia

Sri Lanka
Singapore
Korea, South
 Per Capital GDP
Constant US$

$60,000

$50,000

$40,000
Singapore
$30,000 South Korea
Malaysia
$20,000 India
Sri Lanka
$10,000

$0
1980
1982

1986
1988

1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
1984

1990
 Sri Lankas Rankings

0
20
40
61
60 73
80 94 92 90
100
121
120 135 135
140
160
Trade and Openness Focus
 Sri Lanka: Freedom to Trade
9

2
 $3,000
$6,000

$0
$9,000
$12,000
$15,000
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
Policy of Openness

1988
1990
1992
Constant 2010 $US, Millions

1994
Sri Lankan Exports

1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
New Zealands 1980s Reforms

Agricultural Subsidies
and Trade Barriers
Dramatically Reduced
 New Zealand Agricultural Exports
Constant 2010 $US, Millions

$500,000
$450,000
$400,000
$350,000
$300,000
Trade barriers and
$250,000
subsidies removed
$200,000
$150,000
$100,000
$50,000
$0
1964

1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988

1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
1966

1990

2014
Urgent Policy Work
Is Required
 Economic Freedom

Increases prosperity for all

Reduces poverty
Increases other freedoms
Improves quality of life
www.freetheworld.com

www.fraserinstitute.org