The Index of Economic Freedom is an annual index and ranking created in 1995 by The Heritage Foundation and The Wall Street Journal to measure the degree of economic freedom in the world's nations. The creators of the index assert that they take an approach inspired by Adam Smith's The Wealth of Nations, that "basic institutions that protect the liberty of individuals to pursue their own economic interests result in greater prosperity for the larger society".^{[page needed]}

The Heritage Foundation's Index of Economic Freedom states that, "Economic freedom is the fundamental right of every human to control his or her own labor and property. In an economically free society, individuals are free to work, produce, consume, and invest in any way they please. In economically free societies, governments allow labor, capital, and goods to move freely, and refrain from coercion or constraint of liberty beyond the extent necessary to protect and maintain liberty itself." By publishing the Index annually, the foundation attempts to highlight where such freedoms do and do not exist.

The Heritage Foundation reports that the top 20% on the Index have twice the per capita income of those in the second quintile, and five times that of the bottom 20%.

Carl Schramm, who wrote the first chapter of the 2008 Index, states that cities of Medieval Italy and those of the mid-19th century Midwestern United States both flourished proportionate to their possessed economic fluidity and institutional adaptiveness created by economic freedom.

According to Will Wilkinson of the libertarian think tank Cato Institute, studies show that higher economic freedom correlates strongly with higher self-reported happiness. According to economists Tomi Ovaska and Ryo Takashima, economic freedom research suggests "that people unmistakably care about the degree to which the society where they live provides them opportunities and the freedom to undertake new projects, and make choices based on one's personal preferences."

According to the Cato Institute, higher economic freedom promotes participation and collaboration. Also claimed is that higher economic freedom is extremely significant in preventing wars; according to their calculations, freedom is around 54 times more effective than democracy (as measured by Democracy Score) in diminishing violent conflict.

Between 1995, the first edition of the Index, and 2008, the score for world economic freedom has increased, rising 2.6 points, according to the Index.

Between 2008 and 2011, however, the score decreased 60.2 to 59.7, though the 2011 score represents an increase of 2.2 points since the first edition in 1995. The economic freedom score improved for 117 countries, the majority of countries included in the index, which were mainly developing and emerging market economies. In 2011, with the exception of Europe and North America, there were increased levels of freedom recorded in all regions, with the greatest improvement shown in Sub-Saharan Africa. The top five "free" economies identified by the 2011 index were Hong Kong, Singapore, Australia, New Zealand, and Switzerland, each scoring over 80 on the economic freedom grading scale.