Market Power

Musings by an academic economist on the power of markets and the power over markets.

Thursday, November 25, 2004

Economic Freedom Index Part Un

The Pacific Research Institute Released their Economic Freedom Index for 2004. The executive summary describes the methodology:

"The methodology consists of four parts: (1) we compiled a set of indicator variables for economic freedom and from that we created various data sets; (2) these data sets were converted into 48 unique indexes using different weighting techniques; (3) we compared each index to the others in terms of its ability to explain, other things equal, human migration; and (4) the index with the greatest statistical link to migration was chosen as the best and we used it to rank the U.S. states in terms of economic freedom."

The index uses human net migration as a primary dependent variable in an econometric model because people move to the places in which they have the best opportunity. The index uses 5 broad categories of variables to measure economic freedom: fiscal, regulatory, welfare, judicial, and government size. Among the criteria are minimum wage laws, right to work laws, tort laws, and environmental legislation.

Leading the way is Kansas. Bringing up the rear is New York. Here is the PRI's table ranking states from first to last.