THE LEGATUM PROSPERITY INDEX 2019 — METHODOLOGY REPORT www.li.com www.prosperity.com PROSPERITY INDEX The Legatum Prosperity IndexTM 2019 Methodology Report A tool for transformation THE LEGATUM PROSPERITY INDEX 2019 — METHODOLOGY REPORT ©2019 The Legatum Institute Foundation. All rights reserved. The Legatum Prosperity IndexTM and its underlying methodologies comprise the exclusive intellectual property of Legatum Foundation Limited. The word ‘Legatum’ and the Legatum charioteer logo are the subjects of trade mark registrations of Legatum Limited and ‘Legatum Prosperity Index’ is a registered trade mark of Legatum Foundation Limited. Whilst every care has been taken in the preparation of this report, no responsibility can be taken for any error or omission contained herein. THE LEGATUM PROSPERITY INDEX 2019 — METHODOLOGY REPORT Contents Introduction .................................................................................................................................................... 3 Part I – Defining prosperity .......................................................................................................................... 4 What is prosperity? ........................................................................................................................... 4 Inclusive Societies ...............................................................................................................................7 Open Economies .............................................................................................................................. 12 Empowered People ...........................................................................................................................17 Part II – Measuring prosperity ...................................................................................................................23 Overview ...........................................................................................................................................23 1. Selecting indicators .....................................................................................................................24 2. Creating a complete dataset .....................................................................................................24 3. Standardising indicators ............................................................................................................25 4. Constructing the Index ............................................................................................................... 27 Part III - Assessing the Prosperity Index and its pillars .........................................................................30 Introduction ......................................................................................................................................30 Productive capacity and Cantril’s Ladder ....................................................................................30 Internal tests .................................................................................................................................... 31 Sensitivity to changes in weighting ..............................................................................................32 Comparison with other global Indexes ........................................................................................34 Part IV – Comparison to the previous Index ...........................................................................................36 Introduction ......................................................................................................................................36 What changes have been made to the Index? ...........................................................................36 Impact of changes at the pillar level ............................................................................................38 Impact of changes on overall prosperity .....................................................................................39 1 THE LEGATUM PROSPERITY INDEX 2019 — METHODOLOGY REPORT Appendix .................................................................................................................................................... 41 Appendix I: List of sources .............................................................................................................. 41 Appendix II: Indicator lists .............................................................................................................44 Inclusive Societies ...................................................................................................................44 Open Economies ..................................................................................................................... 57 Empowered People ................................................................................................................. 72 Appendix III: Breakdown of new and existing indicators used ................................................85 Appendix IV: Summary statistics for pillars and elements ......................................................86 Appendix V: Country groupings for imputation ......................................................................... 91 Appendix VI: Degree of imputation by country .........................................................................92 Appendix VII: A zero-migration model of working age population change ..........................94 2 Legatum Institute Prosperity Index - Methodology Report THE LEGATUM PROSPERITY INDEX 2019 — METHODOLOGY REPORT Introduction Our mission at the Legatum Institute is to create the pathways from Our aim in publishing this methodology report is to provide all the poverty to prosperity, by focussing on understanding how prosperity information required to understand the Legatum Prosperity Index and is created and perpetuated. Prosperity entails much more than wealth: to present it in a way that is transparent, useful, and informative. it reaches beyond the financial into the political, the judicial, and the This report describes the methodology underpinning the Legatum wellbeing and character of a nation – it is about creating an environ- Prosperity Index, through four parts. Part I defines prosperity, us- ment where a person is able to reach their full potential. A nation is ing knowledge built up over the 13 years of measuring and studying prosperous when it has effective institutions, an open economy, and prosperity. Part II addresses and explains moving from definition to empowered people who are healthy, educated, and safe. measurement, how indicators have been selected to fit the prosperity The measurement of national prosperity is an important task for gov- framework, and the process of going from these indicators to an overall ernments and for those who hold them to account. It is the real meas- measure of prosperity. Part III assesses the Prosperity Index, exploring ure of whether a nation is truly fulfilling the potential of its people, in the statistical properties of the Index, and the tests undertaken. Part terms of both their productive capacity and their collective wellbeing. IV highlights the changes made to the 2019 Prosperity Index, following Our ambition for the Index is that it becomes a tool for leaders around a 12-month review and refinement, undertaken with over 100 experts the world to help set their agendas for growth and development. By from around the world, and the impact of those changes on the find- identifying success, we can enable national and local governments, ings from the Index. businesses, civil society, and philanthropists to identify what works, adopt best practices, and also enable others to hold them to account. Legatum Institute Prosperity Index - Methodology Report 3 THE LEGATUM PROSPERITY INDEX 2019 — METHODOLOGY REPORT Part I Defining prosperity What is prosperity? Over 13 years of measuring and understanding prosperity, it has be- The Open Economies domain captures the extent to which an econ- come evident that the multidimensional nature of true prosperity omy is open to competition, encourages innovation and investment, must be clearly articulated. True prosperity is more than just material promotes business and trade, and facilitates inclusive growth. For a wealth. Prosperity entails much more than wealth: it reaches beyond society to be truly prosperous, it requires an economy that embod- the financial into the political, the judicial, and the wellbeing and char- ies these ideals. This domain consists of the Investment Environment, acter of a nation — it is about creating an environment where a person Enterprise Conditions, Market Access and Infrastructure, and Economic is able to reach their full potential. Quality pillars. The following section outlines the definition of prosperity that under- The Empowered People domain captures the quality of people’s lived pins the Legatum Prosperity Index, describing its core components experience and the associated aspects that enable individuals to reach and structures. their full potential through autonomy and self-determination. This do- main consists of the Living Conditions, Health, Education and Natural The domains of prosperity Environment pillars. Prosperity is multifaceted and cannot be defined by simple linear Together, these domains comprise 12 equally-weighted pillars. It is im- measures. It is a multidimensional concept, which the Prosperity Index portant