Executive Summary
The core challenge in every economy is ensuring the efficient allocation of scarce productive resources. When resources are allocated efficiently, both maximizing welfare in the short term and ensuring its stable growth over time become possible. Thus, resource allocation stands as a fundamental economic concern. In all economies, resources are distributed through two main mechanisms: the market mechanism and central planning.
In market-based economies, resource allocation is determined by prices that emerge from voluntary exchanges between buyers and sellers. Changes in relative prices naturally guide resources toward their most efficient uses. In contrast, centrally planned economies rely on a central authority to allocate resources through policies such as taxes, subsidies, and regulations. In practice, most economies employ a mix of these two systems, with some leaning more heavily on market forces and others relying more on government intervention. This raises a key question: which system yields better outcomes—market-driven decisions or administrative control? A striking answer emerged in the 1990s with the near-total collapse of socialist economies, where resource allocation was predominantly dictated by central planning.
Of course, socialist economies represent an extreme case. Government intervention is more limited in most countries, varying across nations and even within the same country over time. Studies analyzing a broad range of economies over extended periods have found that greater reliance on market-based allocation correlates with higher income levels, more substantial economic growth, fewer conflicts, and better environmental protection (Mitchell, 2024).
This ongoing debate over how a country’s resource allocation system impacts its broader economic and social indicators has driven researchers to seek empirical evidence. One key question they have sought to answer is: How can we measure how much an economy relies on markets versus administrative decisions? In response, scholars have developed various indicators, one of the most prominent being the Economic Freedom Index (EFI), created by James Gwartney and Robert Lawson. The EFI assesses “the extent to which a country’s policies and institutions allow individuals to make their own economic choices” (Gwartney et al., 2024:1). Published annually by the Fraser Institute in its Economic Freedom of the World reports, the index was first introduced in 1996. Since 2000, it has measured the Economic Freedom Scores (EFS) of over 100 countries each year, making it one of the most widely used indicators in the field.
A country’s EFI score is based on five key areas: (1) Size of Government, (2) Rule of Law and Property Rights, (3) Sound Money, (4) Freedom to Trade Internationally, and (5) Regulation. Each area comprises multiple components, many of which include sub-components. These sub-components are averaged to determine a component rating, which is then used to calculate the score for each of the five key areas. Finally, the overall EFS is derived from the average of these five area scores. The index ranges from 0 to 10, with higher scores indicating greater economic freedom—that is, a larger share of resources allocated through market mechanisms (Mitchell, 2024).
This study explores Turkey’s EFI score, particularly its trajectory throughout the 2000s and the key factors influencing its evolution. In 2001, Turkey’s EFS stood at 5.56, rising to 7.02 by 2011. However, the score has steadily declined in the years since, and by 2022, Turkey was classified among the “least free countries,” ranking 138th out of 165. To understand the factors behind this downward trend, the study conducts a detailed analysis of the five sub-categories that comprise the EFI.
