International Regulatory Indexes at a Glance

Index of Economic Freedom 2017
Zhoudan Xie
January 29, 2018

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Deregulation remains a significant part of President Trump’s agenda and some credit his deregulatory promises with improving economic indicators. However, making that link in a rigorous way is challenged by the lack of good metrics for quantifying regulation.

Measuring regulation has been a challenging task, especially when regulations are considered cumulatively. Often, the number of rules and the number of pages in the Federal Register or in the Code of Federal Regulations (CFR) are used to show regulatory trends in the U.S. over time.[1] Yet these measures are problematic (or even impossible) in cross-national comparisons where different regulatory environments and languages are concerned. Unsurprisingly, internationally-comparable measures of regulation are constructed through completely different approaches.

This Insight provides an overview of how regulation is measured and compared across countries, compares the available measures, and examines where the U.S. stands relative to other countries. 

Composite Index Approach

A common approach used to construct internationally-comparable measures is the composite index approach. This method constructs a single measure of regulation by aggregating multiple indicators based on an underlying analytical model. Indicators can be further broken down into more specific, measurable variables. Because of the multi-dimensionality of variables involved, variables are usually scored on a unified scale based on a country’s relative position to the others.

Several international regulatory indexes constructed in this way have been published by international organizations and think tanks, enabling cross-national empirical research on the cumulative impacts of regulation (Table 1). Although these indexes are subject to various critiques, they still represent the best currently available, internationally-comparable measures of regulation.

Overall, the focus of international regulatory indexes is more on economic regulation than on social regulation. Economic regulations such as business and labor regulations are generally considered directly linked to economic development and are easier to quantify than social regulations. However, even for economic regulations, the existing indexes differ significantly in terms of the coverage of regulation, methodologies and data.

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[1] Other measures include the number of command words (such as “must” and “shall not”) in CFR.