A quantitative analysis of economic freedom for key ASEAN economies

Photo: Firdaus Latif/CC BY 2.0

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Thailand Economic Freedom Falls. Indonesia lacks growth

Economic freedom measures how freely labour, capital and investments can move within and without the nation. Predictably, Singapore as the financial and business powerhouse of ASEAN continues to lead in the EFI (Economic Freedom Index). The index shows worrying trends for Thailand and Indonesia as their economic freedom decreased and stored respectively. For Thailand, the military government can be a contributing factor. In Indonesia, President Widodo has promised economic expansion plans which include opening up of several sectors just recently.

Malaysia’s Economic Index grows strong

The trend for Thailand and Indonesia is worrying also because they are the largest domestic market for ASEAN and they are also the largest economics in the region. Malaysia’s sharp increase in economic freedom under PM Najib may not be intuitive given the attention Malaysians have given to the 1MDB incident. One thing is for sure, if we assume the EFI correctly measures economic freedom, Malaysia’s economic growth will likely be positive under this trend.

Malaysia’s increase of economic freedom

Malaysia’s economic freedom score in the EFI is 70.8. This was an increase of 1.2 points compared to the score in 2014. Now, Malaysia falls in the category “mostly free” (only five countries in the “free” category and 29 in the “mostly free” category). Despite the increase in EFI score, many suspect that Malaysia’s overall economic freedom continues to be impeded by systemic shortcomings – perceived increase in corruption levels and political inference in the judiciary arm of government.

Malaysia’s GDP Per Capital Growth over the last 5 years

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Malaysia’s GDP per capital growth has generally matched the rate achieved by Singapore. Using a simple average to measure the growth rate over the 15 years, Malaysia’s average GDP per capital growth rate was 3.26%, compared to Singapore’s 3.43%.

We will be keen to continue to monitor Malaysia’s economic growth given the increase in economic freedom in the country.

 The Index of Economic Freedom is based on 10 types of freedom, comprising property rights, freedom from corruption fiscal freedom, government spending, business freedom, labor freedom, monetary freedom, trade freedom, investment freedom and financial freedom. The overall score is simply an average of the scores on each of these 10 freedoms.