Frequently Asked Questions
General
Q: What is the Legatum Prosperity Index?
A: The Prosperity Index uses a holistic definition of prosperity to include both material wealth and quality of life. Rather than replicating other measurements that rank countries by their actual levels of wealth, life satisfaction, or development, the Prosperity Index produces rankings based on the foundations of prosperity. These are the factors that help drive economic growth and produce happy citizens in a given country.
Q: What are the main findings of the Prosperity Index?
A: The 2011 Prosperity Index highlights 4 Index Insights which can be found on the Index Findings pages of this website. These 4 Index Insights are the following:
(1) Arab Spring Countries Could Look to Indonesia and Malaysia
(2) Freeing the Entrepreneurial Spirit of Africa
(3) India vs. China: Who is Best Positioned to Tackle Corruption?
(4) The European Crisis: Time to Rethink Integration
The 2011 Prosperity Index also includes 14 Features, which are shorter pieces which offer insightful and though provoking on a wide range of issues, from Iran emigration, trust levels in Scandinavian countries, to Australia’s rise in the Index, and many more.
Q: Why are some countries excluded from the 2011 Legatum Prosperity Index?
A: Although the Prosperity Index ranks and evaluates 110 countries comprising more than 93% of the world’s population and 97% of the world’s GDP, we cannot include all countries. Why? The answer is straightforward: there is not sufficient data available on that country. the
measurement of prosperity encompasses no fewer than 89 variables, drawn from 12 different data sources – the most prominent of these, the Gallup World Poll, is currently only able to cover 154 countries.
Some governments, notably those of Burma, Cuba, and China, restrict the types of questions that Gallup can ask. In particular, they forbid eliciting citizen opinion about corruption and other sensitive issues of governance. Other countries as diverse as Somalia, Samoa, Serbia, and Suriname are included in the Gallup World Poll but are not sufficiently covered by other data sources (for example, World Development Indicators). This means they do not meet our 80% threshold for data availability, in order to be considered for inclusion in the Prosperity Index (please Feature 2 in the 2011 Prosperity Index Brochure on page. 18).
Q: Has the global recession made a difference to countries’ rankings?
A: Yes- This year’s Index contains some variables that still reflect the residual effects of the downturn, while a few encapsulate the long-term foundations of prosperity that are stable under adverse conditions. Furthermore, certain subjective survey-based data capture modest signs of recovery. The Economy sub-index, for example, captures aspects of the downturn through the decline in domestic savings rates and foreign investment, and the higher rates of unemployment and non-performing loans. This holds true for many countries across the world but especially in the developed world. Confidence in financial institutions continued to fall in the 2011 Index, but interestingly people’s future expectations about the economy have improved since last year’s Index.
As might be expected, the countries hardest hit by the crisis – notably Greece, Iceland, and Ireland – have seen dramatic declines in their Economy ranking. However, of all the European countries suffering sovereign debt crises, only Italy experienced a decrease in overall score from 2010, and that was due less to economic malaise than to lower scores in four other sub-indices: Governance, Safety & Security, Personal Freedom, and Social Capital.
It is important to note that the Index’s purpose is not to track fluctuations in the usual economic measures but to gauge the structural, institutional, and cultural underpinnings of global prosperity. In principle, a recession should not have a major impact on the Index’s rankings – unless, of course, it shakes the foundations of long-term prosperity, which extend beyond macroeconomics.
Q: Which countries have moved the most in rankings?
A: Uzbekistan and Ghana have improved the most in their respective Prosperity Index rankings since 2010. Uzbekistan has moved up by 12 places (to 64th overall) and Ghana has improved by 12 places as well (up to 78th). For Uzbekistan this is primarily due to a dramatic increase in the Economy sub-index (moving up 43 places to 65th for that sub-index). For Ghana this is due to a significant improved in the Social Capital sub-index (up 30 places). Conversely, Botswana experienced the largest decline in the Prosperity Index rankings, moving down 10 places. The main factor behind this is due to declines in the Economy, Governance, and Social Capital sub-indices.
Q: Does the Prosperity Index provide countries with a recipe for success?
A: The Index shows you what works for national prosperity. We provide the ingredients for success, it is up to each country to come up with the best recipe for its people.
Methodology
Q: How was the 2011 Prosperity Index compiled?
A: We went through three major stages of research, statistical analysis, and review. The first was to take lessons learned from established theoretical and empirical literature. This research enabled us to determine the foundations of prosperity and identify data sources that contained measurements for these foundations. Secondly, through rigorous econometric analysis we determined which variables had statistically significant relationships to prosperity. Finally, we underwent a review by independent academic advisors in different fields related to prosperity. The result of this analysis is a Index that provides assessments of countries’ performances on 89 measures of wealth and wellbeing. For more information on this process, please refer to the methodology section of the full report.
Q: What are the key factors that promote prosperity?
A: The Index assesses 110 nations around the world by assessing their performance in promoting prosperity in eight areas that are the drivers of prosperity. These are:
1. Economy
2. Entrepreneurship & Opportunity (E&O)
3. Governance
4. Education
5. Health
6. Safety & Security
7. Personal Freedom
8. Social Capital
Q: How did you choose these 8 sub-indexes?
A: We based these categories on decades of empirical and theoretical research done by established experts. The eight sub-indexes are the eight common themes that have emerged from this research.
Q: Why don’t you have a sub-index on the environment?
A: For the 2011 Prosperity Index, we have included six environment related variables in four sub-indexes. The reason for including the variables in separate sub-indexes, instead of creating a separate Environment sub-index, is that while the other drivers of prosperity are, in essence, man-made, the environment is an endowment that countries possess. The Prosperity Index is primarily interested in how societies use and respond to limited and volatile environmental resources. As a result, the Index measures how the environment affects the other drivers of prosperity.
Q: Why do you use such a complicated methodology? Why not just rank countries on their income and life satisfaction averages?
A: The Prosperity Index is an assessment of the DRIVERS of prosperity. We do not seek to identify which countries are prosperous or not. By determining the factors that are most strongly related to prosperity, and evaluating countries on these factors, the Index identifies countries that have the proper foundations for creating a strong economy and citizen wellbeing.
Q: What is the difference between rankings and scores?
A: Rankings show you the relative difference between countries, showing you who is performing better than others. Scores show you the absolute difference, showing you by how much a country is doing better than others.
Q: Has the Index been independently reviewed?
A: Legatum engaged a panel of academic experts who specialise in the study of prosperity to review and edit the Index. These experts represent a wide range of scholars and researchers, from leading academic institutions, in disciplines from economics to political science and more. The Index is increasingly quoted by learned authorities and used as a credible reference in studies on wealth and wellbeing. For more information about the academic advisory panel, please see page 324 of the Legatum Prosperity Index full report.
Legatum-related
Q: What is the Legatum Institute and what does it do?
A: The Legatum Institute is an independent, non-partisan organisation that researches and advocates for an expansive understanding of global prosperity. It supports original work in public policy, political economy, democratic governance, political culture, and national security and seeks to influence policy-makers, business leaders, philanthropists, scholars, and the interested public. For more information, visit www.li.com
Q: Who is Legatum?
A: Legatum is a global investment organisation with a twenty year history, and applies its investment experience to allocate capital where it may deliver exceptional returns in the international capital markets, in programmes that promote sustainable human development, and in advocacy for enlightened public policy environments which provide for the creation and extension of global prosperity.
The Legatum Group is composed of : Legatum Capital; Legatum Ventures; the Legatum Institute; Legatum Center at MIT; Legatum Foundation.