Economic Freedom and Transparency in Latin America

This Report elaborates a ranking of economic freedom and transparency in Latin America by weighing four indexes. In Part I, the ranking measures the performance of countries and in Part II, it measures the performance of the region’s different blocs and political associations. The four indexes that are used are: Heritage Foundation’s Index of Economic Freedom, Transparency International’s Corruption Perceptions Index, and the World Bank’s Rule of Law Index and Government Efficiency Index.

Heritage Foundation’s Index defines economic freedom as “absence of government coercion or constraint on the production, distribution, or consumption of goods and services”. The index is based on ten factors that are averaged: 1) trade policy, 2) fiscal burden of government, 3) government intervention in the economy, 4) monetary policy, 5) foreign investment, 6) banking and finance, 7) wages and prices, 8) property rights, 9) regulation, and 10) informal market activity1. On the other hand, Transparency International states that “the Corruption Perceptions Index (CPI) establishes each year a ranking of countries based on their levels of corruption in the public sector perceived by businessmen, risk analysts and ordinary citizens”2.

Thirdly, the Rule of Law Index includes different indicators that measure the extent to which agents have confidence in and abide by the rules of society. These include perceptions of the incidence of crime, the effectiveness and predictability of the judiciary, and the enforceability of contracts.

Finally, the Government Efficiency Index combines surveys on the quality of public service delivery, the quality of bureaucracy, the competence of bureaucrats, bureaucracy’s independence from political pressure and the credibility of the government’s commitment towards the policies it aims to implement3. All of these indexes are weighted equally (25%).

Pedro Isern Munné is Director of the Area Economics and Rule of Law of CADAL. He was President of CADAL in 2004 and Vice-President in 2003. He contributed with the writing of books titled “Mitos del milenio. El fin del trabajo y los nuevos profetas del Apocalipsis”, by Mauricio Rojas (CADAL/Timbro, 2004) and “La Experiencia Chilena. Consensos para el desarrollo” (CADAL, 2005). He has a Master Degree in Political Philosophy (London School of Economics and Political Science), a Master Degree in Economics and Political Sciencie (Escuela Superior de Economía y Administración de Empresas), and a BA in Political Science (Universidad de San Andrés). He was visiting fellow at the Atlas Economic Research Foundation - USA.