THE LEGATUM PROSPERITY INDEX — MEASURING PROSPERITY www.li.com www.prosperity.com PROSPERITY INDEX The Legatum Prosperity IndexTM Measuring prosperity THE LEGATUM PROSPERITY INDEX — MEASURING PROSPERITY ©2020 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 — MEASURING PROSPERITY Contents Introduction .................................................................................................................................................... 2 Part I — Measuring prosperity ..................................................................................................................... 3 Overview ............................................................................................................................................. 4 1. Selecting indicators ....................................................................................................................... 5 2. Creating a complete dataset ....................................................................................................... 5 3. Standardising indicators .............................................................................................................. 6 4. Constructing the Index ................................................................................................................. 8 Part II — Assessing the Prosperity Index and its pillars .........................................................................11 Introduction .......................................................................................................................................11 Productive capacity and Cantril’s Ladder .....................................................................................11 Internal tests .................................................................................................................................... 12 Sensitivity to changes in weighting .............................................................................................. 13 Comparison with other global Indexes ........................................................................................ 15 Appendix ........................................................................................................................................................17 Appendix I: Sources used in the 2019 Prosperity Index .............................................................17 Appendix II: Indicators used in 2019 Prosperity Index..............................................................20 Appendix III: Summary statistics for pillars and elements, 2019 Prosperity Index ............................................................................................................................... 61 Appendix IV: Country groupings for imputation, 2019 Prosperity Index ..............................66 Appendix V: Degree of imputation by country, 2019 Prosperity Index .................................67 1 THE LEGATUM PROSPERITY INDEX — MEASURING PROSPERITY Introduction Our mission at the Legatum Institute is to build an international move- In producing the 2019 Global Prosperity Index, we carried out a meth- ment of people committed to the transformation of society and the odological review to ensure that the Index was more policy-focused, creation of pathways from poverty to prosperity. improving the Prosperity Index’s capacity as a transformational tool to help drive change. To inform the review, we sought the advice of Prosperity is far more than wealth; it is when all people have the more than 100 global experts, from academia and policy-focused or- opportunity and freedom to thrive. Prosperity is underpinned by an ganisations. A biography for each of the experts is available at www. inclusive society, with a strong social contract that protects the funda- prosperity.com. mental liberties and security of every individual. It is driven by an open economy that harnesses ideas and talent to create sustainable path- This report describes the methodology underpinning the 2019 Legatum ways out of poverty. And it is built by empowered people, who contrib- Prosperity Index. Moving forwards, we wish to maintain stability in the ute and play their part in creating a society that promotes wellbeing. production of the Index and intend to keep any changes to a minimum. That said, changes are sometimes necessary and we will issue a doc- The measurement of national prosperity is therefore integral for gov- ument supporting the release of each annual Prosperity Index that ernments to understand the impact of their decisions, and for citizens outlines any changes made — and the impact of those changes, which to hold the government to account. The Legatum Institute’s Global will include updated summary statistics mirroring those included in the Prosperity IndexTM has been specifically designed as a transformational appendix tables of this document. tool, so that leaders around the world can use it to help set agen- das for growth and development and build prosperity. It analyses the This report constitutes two parts: Part I addresses and explains moving performance of 167 countries, representing over 99% of the world’s from the definition of prosperity (see accompanying Defining prosper- population, enabling the potential of each country to be identified ity document, which can be found on our website) to measurement, and understood. how indicators have been selected to fit the prosperity framework, and the process of going from these indicators to an overall measure By identifying success, we can enable national and local governments, of prosperity. Part II explores the statistical analyses and compari- businesses, civil society, and philanthropists to identify what works, sons that were used to benchmark the 2019 Prosperity Index. For a adopt best practices, and also enable others to hold them to account. full comparison between the 2019 Prosperity Index and the 2018 Our aim in publishing this methodology report is to provide all the Prosperity Index, please refer to the 2019 Methodology Report, which information required to understand the Legatum Prosperity Index and can be found at www.prosperity.com to present it in a way that is transparent, useful, and informative. 2 The Legatum Institute Prosperity Index - Measuring prosperity THE LEGATUM PROSPERITY INDEX — MEASURING PROSPERITY Part I Measuring prosperity Overview Using our conceptual framework for measuring prosperity across The following section describes the calculation of the Prosperity Index, the world, comprising 3 domains, 12 pillars, and underpinned by 65 broadly split into four sections: (1) the selection of indicators under- policy-focused elements (see “The building blocks of prosperity” dia- pinning each of the 65 elements; (2) creating a complete dataset; (3) gram on the following page), we create a measurement system. For a standardising the indicators; (4) constructing the Index through a pro- full definition of each domain, pillar, and element, please refer to the cess of transformation and aggregation. This process is outlined in the Defining prosperity document. diagram below. Overview of the calculation of the Prosperity Index 1. Selecting 2. Creating a 3. Standardising 4. Constructing indicators complete dataset indicators the Index • Assessing the conceptual • Forward and back filling • Time offsetting • Assigning indicator and properties element weights Augmenting with other • Transformation, logging • • Assessing the statistical sources • Calculating element properties • Normalising between 0 scores • Imputation and 1 • Optimising geographical • Calculating pillar, and temporal coverage domain and element scores The Legatum Institute Prosperity Index - Measuring prosperity 3 rts ffo E n nesr tio t a wceaa rv sOh se re nesr Elementsre F eaat P hwc esO Fr oil d S an nd n La io t, lut es ol or r P F Ai ns t t o to ssi n n e i ur Em e e s po Ex m m l l a a n Pillars n r r ls o o il u u r r t Sk i i l t t du v v A a a n n n N N io E E cat Edu ary erti T ion ucat y Ed ndar Seco n n on ucati o o ed i i y imar t t Pr a Domains a ation c c uc ary ed u u im e Pre-pr d d l E E p o y Longevit e P alth Physical He d e h h h tal Healt r Men t t l l e a a Care Systems e e w H H o Preventative Interventions p Behavioural Risk m Factors E s Pro tection from n Harm g o i n t Con i nec i tednes v s i d L n S o helter C B asic Ser vices s Nu ie tritio Ma n Domains c teria m i l Res o ourc m y es n o it L o l ab c n our In o a Forc c E c u e En l n E ga u e Q P gem s p rod ent iv O uct e ivit Dy THE LEGATUM INSTITUTE — MEASURING PROSPERITY So y & na ci s C mis etie s M om m s e e a pe Pillars r cro tit c u ec ive c t ono nes A c m s The domains, pillars, and elements of prosperity, 2019 Prosperity Index t u F ic S e r isc ta k t al bil S r s Su ity & a a a st f fr M ain S e M a a t n rk bil e y I Imp e ity c t D u & o is r se rt to it i O Ta rt y r p ri io rp s B en ff ns e n or B ce t d M ar n P n io er a ri t le e E it A rk er Elementsic o r d d et