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The Index of Economic Freedom: Methodological matters

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  • Issaka Dialga

    (LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - IEMN-IAE Nantes - Institut d'Économie et de Management de Nantes - Institut d'Administration des Entreprises - Nantes - UN - Université de Nantes)

  • Thomas Vallée

    (LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - IEMN-IAE Nantes - Institut d'Économie et de Management de Nantes - Institut d'Administration des Entreprises - Nantes - UN - Université de Nantes)

Abstract

Composite indicators (CIs) are essential in public debates and policies so the social demand for synthetic tools is constantly increasing. They are also subject to criticism (see Saisana and Saltelli 2010; Klugman et al., 2011) due to lack of a gold standard in their construction. The Index of Economic Freedom (IEF) is one of these tools subject to criticism because it suffers from methodological matters. The IEF lacks statistical validity because two of its components are strongly and negatively correlated with the others. Both components are causing significant variations in 95 percent of countries ranked. This paper deals with these issues by using Principal Components Analysis (PCA) and Benefit Of the Doubt (BOD) methods to generate component and country specific weights in computing the scores. The PCA and BOD analyses provide consistent results that differ dramatically with the baseline ones (results using equal weights). Given stable results provided by the PCA and BOD analysis, the IEF would receive broad legitimacy basing the calculation of its scores on endogenous weighting models.

Suggested Citation

  • Issaka Dialga & Thomas Vallée, 2015. "The Index of Economic Freedom: Methodological matters," Working Papers hal-01178202, HAL.
    • Handle: RePEc:hal:wpaper:hal-01178202
    Note: View the original document on HAL open archive server: https://hal.science/hal-01178202
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    References listed on IDEAS

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    1. Jeni Klugman & Francisco Rodríguez & Hyung-Jin Choi, 2011. "The HDI 2010: new controversies, old critiques," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 9(2), pages 249-288, June.
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    Keywords

    Index of economic freedom; Principal components Analysis; Benefit of the Doubt weighting system; country ranking;
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