The EFI is calculated by measuring a number of metrics like fiscal health, regulations, government integrity, etc. Some economists like Jeffrey Sachs have criticized the index stating that a high Freedom Index does not necessarily correlate with higher economic growth per capita. So we will begin by analyzing that claim.

As we can see in this first graph, there does not seem to be a clear trend between EFI and GDP growth per capita, with the countries with higher growth located somewhere in the middle of the index. This confirms what Jeffrey Sachs argues.

However, this could be evidence that countries with high economic growth are likely developing nations that still have not created strong institutions and freedoms. We could expect countries that are developed to have high EFI and low GDP growth. Still, from the graph it does not seem like a high EFI is a predictor of high growth.

We can see there is a good correlation between GDP per capita and EFI. Unsurprisingly, richer countries have a higher degree of freedom. This correlation remains strong and statistically significant at p 0.001.

summary(fit <- lm(Score ~ log(GDP_pc), data = efi2))

## 
## Call:
## lm(formula = Score ~ log(GDP_pc), data = efi2)
## 
## Residuals:
##     Min      1Q  Median      3Q     Max 
## -27.004  -3.869   1.074   4.487  19.358 
## 
## Coefficients:
##             Estimate Std. Error t value Pr(>|t|)    
## (Intercept)   8.1717     4.4695   1.828   0.0694 .  
## log(GDP_pc)   5.7028     0.4743  12.024   <2e-16 ***
## ---
## Signif. codes:  0 '***' 0.001 '**' 0.01 '*' 0.05 '.' 0.1 ' ' 1
## 
## Residual standard error: 7.317 on 161 degrees of freedom
## Multiple R-squared:  0.4731, Adjusted R-squared:  0.4699 
## F-statistic: 144.6 on 1 and 161 DF,  p-value: < 2.2e-16

Thank you for reading!

The full dataset is available here:

https://www.heritage.org/index/explore