Economic Freedom Characteristics of Developed, Brics, and Developing Countries

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ESCUELA SUPERIOR POLITECNICA DEL LITORAL

INTERNATIONAL BUSINESS

“Economic Freedom Characteristics of Developed, BRICS, and Developing countries”

The Heritage Foundation has done a deep research into the Economic Freedom status of each and every country in the world. It involves factors such as: Rule of Law, Limited Government, Regulatory Efficiency, and Open Markets rates. In the webpage of the Heritage Foundation we can make use of these rates to compare with different countries and analyze how they differ in between developed, developing and BRICS’ country members. As a developed country we choose to analyze Germany, as a world potential country it would be a great example to compare with. For a member of the BRICS, we will consider China and for a developing country we will take for example our own Ecuadorian country.

Germany has an overall score of economic freedom of 73.8; it hits the 16th freest economy in the 2015 world index and exceeds the global and regional score. Improvements have been seen government spending, labor and monetary freedom, and trade freedom. In the factor involving Rule of Law, the government transparency is high and Germany has anti-corruption measures that are currently practiced. But the car industry, construction and public contracting are areas where the questionable political party influence is a matter of concerns. On the other hand, the properties owned by foreigners are fully protected under the German law so this ensures international businesses that the political risk is lower. The regulatory efficiency supports the innovative type of business, their formation and operation. It has 88.2 point in business freedom. Starting a business is quite fast; it only takes nine procedures and costs about nine percent of the annual income. Germany’s individual income tax rate is 47.5 percent, and its top corporate tax rate is 15.8 percent. It scores 40.1 in government spending and 60.8 in fiscal freedom. Respecting trade freedom Germany scores 88, and 90 and 70 corresponding to investment and financial freedom respectively. This is because of the European Union which is open to external trade and incentives business with countries abroad. Also the dynamic of the well-developed financial sector helps to promote the economic freedom of Germany.

China has an overall scores 52.7 of economic freedom; it hits the 139th in the rank of the Heritage Foundation and is lower than the global and regional score. Modest improvements have been shown in the economic freedom of china such as in: freedom from corruption, business freedom, and labor freedom, but that has been eclipsed from the declines in investment freedom and the control of government spending. Besides the anti-corruption campaign that promoted Jinping, corruption still remains. The protection of property rights is useless due to the cyber espionage rise in 2014. China’s judicial system is highly influenced by political ranks. So it scores 20 in Property Right and an increase to 40 in Freedom from Corruption. China’s income tax rate can rise up to 45 percent, and its corporate tax rate is 25 percent. Government spending is equaled to the 24.8 percent of the GDP so they scored 81.5 in Government Expenditure and 69.7 in Fiscal Freedom. In the Regulatory Efficiency, creating a business takes 11 procedures and approximately about a month because of the appearance of bureaucratic hurdles. China’s government provides large fossil fuel and electric subsidies followed by significant agricultural subsidies scoring 52.1 in Business Freedom, 63 and 74.2 in Labor and Monetary freedom respectively. 4.1 percent corresponds to the average tariff rate scoring 71.8 in Trade Freedom. Also export taxes, subsides to state-owned firms, anti-dumping barriers are what mostly restrict trade nevertheless it has a high score in Trade Freedom. China still controls the financial sector scoring 30 in Financial Freedom. Investment freedom scores 25 due to the greater access to capital and lower financing costs preference to state-owned businesses than to small and medium companies.