Saturday, October 23, 2010

Correlation between freedom and national wealth

How is a country's freedom level related to its national wealth? People hope that democracy will automatically lead to prosperity. In reality, we see many democratic nations such as India and Bolivia lag behind in their economic development. Using data from Freedom House and World Bank (see references), I plotted the following correlation graph between freedom index and GDP per capita (constant 2000 US$) for 183 countries in the world. The freedom index (see detailed explanation in my last blog)  ranges from 1 to 7, with 1 being most free and 7 being most repressive. GDP per capita ranges from $97 for Congo to $52,748 for Luxembourg.

The 9 oil exporting countries (Kuwait, Qatar, United Arab Emirates, Bahrain, Brunei,Oman, Saudi Arabia, Libya, Equatorial Guinea) are apparently outliers to this chart. Their high income is combined with highly restrictive society. Singapore is another outlier, which can be explained by the fact that it is a tiny country made up of a single city. If we remove the 9 oil nations and Singapore from this chart, we will see a clear trend of higher GDP per capita associated with higher freedom. Countries with high GPD per capita more than $10000 are all free (with freedom index <=2.5). In fact, most non-free countries (freedom index >=5.5) have GDP per capita less than $3000.

For those poor countries with GDP per capita less than $3000, the freeman level ranges widely. Below is a plot of countries in this range. China has GDP per capita (constant 2000 US$) at $2206, and its freedom index is 6.5. 

The above graph does not give us insight on where China will move as its income goes up. But fortunately when we plot out the map for countries with GDP per capital between $3000 and $10000, the picture is much clearer. The worst country in this group has its freedom index at 5.5. It is still much better than what Chinese people enjoy today. This graph also suggests that the freedom situation gets better as a nation's income goes up.  When a nation's GDP per capita is higher than $6,000, the freedom improves to 4 or less. This gives us hope that as China continues its economic growth, the civil society will keep developing. The rising middle class will presses for more freedom, and the government is on a irreversible trend of opening up.

Finally, when a country reaches income level of more than $10,000, then it is definitely free. By this time, democratic system is established and a civil society is vibrant. There is no way to turn it back to any form of dictatorship. One good example is the United States. Right after "9-11", there was a hush on any voice that is criticizing the government. People were supposed to unite around the government to fight the terrorists. The Bush government also started its surveillance program on citizens, and many Muslim men were questioned and even detained. For a while, it seems the civil liberty will leave American people. But soon people start to speak out. Even though the mainstream media is still on the side of the government, independent movies, radio programs and books are created to spread the truth. Eventrually the tide is turned and Obama was elected to office in 2008 on change ticket. (Apparently Obama did not turn out as he promised, but it is a different story.)

The correlation between economic prosperity and freedom of a nation gives us a lot of hope. With 8% annual GDP growth rate, China will reach the threshold of $3000 GDP per capita in 4 years. Big change is coming, and we will all be witness to this historical moment. The time has come to ask each of us: Are we a bystander or participant?

Data download: Freedom index and GDP per capita of all countries

1. Freedom House, Freedom in the World 2010 survey, freedom index of countries in the world
2. World Bank, World Development Indicators 2010, GDP per capita (constant 2000 US$).

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