raises costs of importing equipment by (10 = 10% or less; 0 = more than 50%). This component is based on survey responses to this question obtained from the Global Competitiveness Report 2000.

Based on: World Economic Forum (2001), _Global Competitiveness Report 2001-2002_ (Oxford: Oxford Univ. Press). <u>http://www.freetheworld.com/release.html</u>

|**FINANCIAL**<br>**MARKETS**|||||
|---|---|---|---|---|
|**Variable name in**<br>**corresponding**<br>**database**|**Scale**|**Description**|**Years**|**Source**|
|**(name in our**<br>**database)**|||||
|iv. Avoidance of<br>interest rate controls<br>and regulations that<br>lead to negative real<br>interest rates<br>(efw_aiv)|0 to 10<br>(0= heavy<br>regulation)|Data on credit-market controls and regulations were used to<br>construct rating intervals. Countries with interest rates<br>determined by the market, stable monetary policy, and<br>positive real deposit and lending rates received higher<br>ratings. When interest rates were determined primarily by<br>market forces and the real rates were positive, countries<br>were given a rating of 10. When interest rates were<br>primarily market-determined but the real rates were<br>sometimes slightly negative (less than 5%) or the differential<br>between the deposit and lending rates was large (8% or<br>more), countries received a rating of 8. When the real<br>deposit or lending rate was persistently negative by a<br>single-digit amount or the differential between them was<br>regulated by the government, countries were rated at 6.<br>When the deposit and lending rates were fixed by the<br>government and the real rates were often negative by<br>single-digit amounts, countries were assigned a rating of 4.<br>When the real deposit or lending rate was persistently<br>negative by a double-digit amount, countries received a<br>rating of 2. A zero rating was assigned when the deposit<br>and lending rates were fixed by the government and real<br>rates were persistently negative by double-digit amounts or<br>hyperinflation had virtually eliminated the credit market.|1970-<br>2000<br>(5-year)<br>and 2001|**Economic Freedom of the World, The Fraser Institute**<br>From Section:<br>5: Regulation of Credit, Labor, and Business<br>A. Credit Market Regulations<br>Based on: International Monetary Fund, International<br>Financial Statistics Yearbook (various issues, as well as<br>the monthly supplements)|
|v. Interest rate<br>controls<br>(efw_av)||Reflects whether interest rate controls on bank deposits<br>and/or loans are freely determined by the market.||Based on data provided by the World Economic Forum<br>Global Competitiveness Report.|
|Banking and finance<br>(ief_banking)|1<br>Very low|Government involvement in the financial sector negligible;<br>very few restrictions on foreign financial institutions; banks<br>may engage in all types of financial services|1995-<br>2003<br>(annual)|**The Index of Economic Freedom, Heritage Foundation**|
||2<br>Low|Government involvement in the financial sector minimal; few<br>limits on foreign banks; country may maintain some limits on<br>financial services; domestic bank formation may face some<br>barriers||Based<br>on:<br>Economist<br>Intelligence<br>Unit,<br>Country<br>Commerce, Country Profile, and Country Report for 2001<br>and 2002; U.S. Department of State, Country Commercial|

39