Economy

Which factors in a nation’s economy are associated with higher levels of per capita income? Which economic conditions and are linked to higher levels of wellbeing?

Entrepreneurship & Opportunity

What are the characteristics of a society that encourage citizens to be entrepreneurial, risk-taking, and seek opportunities that are related to higher levels of income and wellbeing?

Governance

What are the government institutions and types of government functions that are related to higher per capita income and higher levels of wellbeing?

Education

Which aspects of an educational system are linked to higher per capita income through their contribution to human capital, and which elements in a learning environment relate to higher levels of wellbeing?

Health

What are the characteristics of a healthy society that are linked to higher levels of income? How does personal wellbeing benefit from physical and mental health-related factors?

Safety & Security

How does the personal safety of citizens and the national security of a nation relate to growth in per capita income and higher levels of wellbeing?

Personal Freedom

Does the freedom of expression, belief, association, and personal autonomy promote higher income and wellbeing? And does tolerance of immigrants and minorities affect prosperity?

Social Capital

What kinds of social networks, relationships, and institutions are associated with higher levels of wellbeing and national income?

1. 1. Selecting the variables [+]

   The variables were selected in 2010 and retained for the 2011 Index. Based on current scholarship into income growth and wellbeing, we identified a large number of potential variables. In order to maintain a globally relevant dataset, we only considered those variables whose coverage includes at least 80% of the countries in the world. The Index uses both objective and subjective variables. We have endeavoured to maintain a balanced approach incorporating survey-based variables together with expert assessments and economic and financial indicators.

   We divided the variables into eight sub-indices depending upon what aspect of prosperity the data covers. Within each sub-index we used regression analysis to identify and retain those that were statistically relevant. Some variables were found to be relevant to income; others to wellbeing. In a few instances, certain variables mattered to both. For instance, a country’s quality of governance not only impacts income levels, but also citizens’ sense of wellbeing. The variables that did not have a robust statistical relationship with income or wellbeing were dropped. At the end of this process, we had 89 independent variables derived from 12 widely recognised data sources.

2. 2. Standardisation [+]

   Not surprisingly, our 89 variables are based on many different units of measurement. For example, subjective variables, such as the proportion of citizens that express confidence in financial institutions, are measured in percentage terms while capital per worker is measured in US dollars. These variables were transformed to a common scale using a statistical technique called standardisation. The standardised variables are then comparable and can be combined to form composite indices.

3. 3. Weighting [+]

   In 2010 we also determined the weight of each variable, using regression analysis. A variable’s weight – the technical term is ‘coefficient’ – represents its relative importance to the outcome (either income or wellbeing). In other words, statistically speaking, some things matter more to prosperity than others. We represent these weights in the graphics provided in each of the sub-index descriptions (see p26-34).

   Again, we emphasise that these weights are not arrived at through subjective judgements or discretionary choices, but are based on the particular statistical relationship between each variable and changes in income and wellbeing. The initial choice of variables was worked out through careful study of current empirical and theoretical research, as well as on the availability of data. But the variables’ weights are determined by their statistical correlations with income and wellbeing. These are calculated separately for each sub-index.

   The weights calculated in 2010 have been kept constant for this year’s Index. Further discussions on these estimation methods, and the rationale for using our specific measures of income and wellbeing, are presented in the Prosperity Index full report on this web site.

How Do We Calculate Prosperity Index Scores and Rankings?

1. 4. Income and wellbeing scores [+]

   For each country, the latest data available are gathered on the 89 independent variables, and these raw values are standardised and multiplied by the income or wellbeing weights, determined by the regressions mentioned above. These weighted variable values are then summed to produce a country’s wellbeing and income score in each sub-index. The income and wellbeing scores are then standardised so that they can be compared.

2. 5. Sub-index scores and rankings [+]

   The standardised income and wellbeing scores are added together to create the countries’ sub-index scores. The countries are then ranked according to their scores in each of the eight sub-indices.

3. 6. Prosperity Index scores and rankings [+]

   Finally, the Prosperity Index score is determined by taking the average of the eight sub-indices to produce a country’s overall prosperity score.

   For each country, we also produce an overall income score, obtained as the average of the eight sub-index income scores, and an overall wellbeing score obtained as the average of the eight wellbeing scores.