The index of economic freedom: methodological matters

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.

Economic Freedom: The Top, the Bottom, and the Reality. I. 1997–2007

“…Others, like Heckelman and Stroup [ 37 ], criticise the method used in order to average components, which they consider to be arbitrary. See also the previous mention of Dialga and Vallée’s recent finding [ 22 ].…”

“…Notice that more recently, Dialga and Vallée [ 22 ] dealt with “methodological issues in the Index of Economic Freedom”, indicating that two components, “1. Tax Freedom” and “Government Spending”, which define the “2.…”

Measuring Christian Religiosity by Google Trends

“…Each component measures a defined dimension of economic freedom, as listed in Table 6. This paper is not going to discuss the indexes in details and interested readers are encourage to visit the official website and refer to Dialga and Vallée (2018). 4 In short, a higher score refers to a better or freer economy.…”

Guest editorial

“…In particular, applying both benefits of the doubt (BOD) methods and principal components analysis (PCA) and using country-specific weight system to construct the Index of Economic Freedom, Dialga and Vallée (2018) find that different from using the equal-weights approach, the conclusions drawn by using both PCA and BOD approaches are similar. Applying copula quantileon-quantile regression to examine the stock-bond nexus for South Africa, India, the USA and the UK, Selmi et al (2019) find significant heterogeneity in the correction of the bond-stock returns.…”

“…The special issue of Behavioral Economics and Behavioral Finance has published 8 papers including Dialga and Vallée (2018), Selmi et al (2019), Xu et al (2019), Liu and Tan (2019), Oehler et al (2019), Sharma and Chakraborty (2019), Xin et al (2019) and Lu et al (2020). Among them, applying the concepts in Behavioral Economics and Behavioral Finance, Dialga and Vallée (2018) and Lu et al (2020) examine different trading rules or indices, Xu et al (2019) examine the effects of volatilities, Selmi et al (2019) examine the stock-bond nexus, Sharma and Chakraborty (2019) examine Indian investors' preference in lottery-like stocks and Liu and Tan (2019) forecast stock prices.…”