Wednesday, February 09, 2011

Comparing countries

Similar to my post comparing states with similar geography but substantially different levels of economic freedom, I wanted to compare countries that are geographically and culturally similar but differ considerable in their levels of economic freedom as measured by the Heritage Foundation. The goal of this exercise is to control as much as possible for these other factors and really isolate the impact of greater economic freedom on prosperity (measured by 2010 per capita GDP levels from the International Monetary Fund). A few notes:
  • I tried to avoid comparisons where culture and geography was similar but resource factors differed considerably (a classic case being oil-rich Norway vs. Sweden). 
  • Economic freedom can be rather subjective, and the Heritage rankings shouldn't be considered definitive or beyond reproach.
  • I literally tried to think of every single instance where there were countries with similar cultures and geography but substantially different economic freedom levels, but this was pretty difficult. Germany and France, for example, differ greatly in economic freedom levels, but are too culturally dissimilar to be of use. Germany and Austria are very culturally similar, but also have little difference in economic freedom. Austria and Switzerland have similar geography and different economic freedom levels, but Switzerland is too culturally heterogeneous. I did not set out to consciously cherry-pick, and if there are obvious comparisons left out, let me know. 
  • On a related note, I wanted to compare the Netherlands with Flanders -- similar in many ways and both include huge ports (Antwerp and Rotterdam) -- but was unable to find GDP per capita data any more recent than 2004 for Flanders. 
  • I included Denmark and Sweden, but will concede the difference in economic freedom levels is not huge (14 places in the world ranking).
Comparison number one: Colombia vs. Ecuador

Why the comparison: Both countries are former Spanish colonies, next door to one another and have access to the sea. Colombia's population, however, is over three times greater.

Colombia economic freedom ranking: 45
Colombia GDP per capita: $6,220
Ecuador economic freedom ranking: 158
Ecuador GDP per capita: $4,295

Comparison number two: Costa Rica vs. Honduras

Why the comparison: Both are Central American countries that avoided civil wars  which engulfed several of their neighbors during the 1980s (the main reason I ruled out Nicaragua), have significant tourism sectors and port access to both the Caribbean and Pacific coasts. 

Costa Rica economic freedom ranking: 49
Costa Rica GDP per capita: $7,350
Honduras economic freedom ranking: 99
Honduras GDP per capita: $2,014

Comparison number three: Spain vs. Portugal

Why the comparison: Both located on the Iberian peninsula with similar climates and cultures.

Spain economic freedom ranking: 31
Spain GDP per capita: $29,875
Portugal economic freedom ranking: 69
Portugal GDP per capita: $21,030

Comparison number four: Denmark vs. Sweden

Why the comparison: Both are Scandinavian countries with similar cultures. While Denmark has little in the way of natural resources, Sweden has plenty of timber and minerals that are mined, perhaps giving it a bit of an edge. That said,

Denmark economic freedom ranking: 8
Denmark GDP per capita: $55,113
Sweden economic freedom ranking: 22
Sweden GDP per capita: $47,667

Comparison number five: Uruguay vs. Argentina

Why the comparison: Both Spanish-speaking countries that were largely settled by European immigrants (although Argentinians are mostly of Spanish and Italian descent while Uruguayans come from a wider range of European backgrounds). Their capital cities are literally a ferry ride away from each other and even their flags are similar.  While both have access to the sea, Argentina is much larger both in terms of geography and population.

Uruguay economic freedom ranking: 33
Uruguay GDP per capita: $12,129
Argentina economic freedom ranking: 138
Argentina GDP per capita: $8,663

  • In every single instance the country with greater economic freedom also has a higher per capita GDP.
  • It's very interesting that 7 of the top 10 countries in the economic freedom ranking were controlled by the UK at one time. 
  • Australia and New Zealand are very similar in terms of culture and economic freedom but their GDP per capita levels vary by over $20,000. Is this difference due strictly to geography (New Zealand is arguably the most isolated country in the world)? What would happen to New Zealand's prosperity if it were suddenly moved into the geographic heart of Europe? 
  • It's also interesting that Australia is $9,000 richer per capita than Canada despite huge similarities, including vast size and huge natural resource endowments. How much of a role does geography play (although this would seem to benefit Canada more given its proximity to the US, Europe and Northeast Asia). What would happen if Quebec were subtracted?

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