The legatum prosperity index™ 2013

SECTION HEADER

www.li.com
www.prosperity.com

2013

THE LEGATUM PROSPERITY INDEX™
LEGATUM INSTITUTE | THE 2013 LEGATUM PROSPERITY INDEX™

| 1

©2013 Legatum Limited. All rights reserved. The Legatum Prosperity Index and its underlying methodologies comprise the exclusive intellectual
property of Legatum and/or its affiliates. ‘Legatum’, the Legatum Logo and ‘Legatum Prosperity Index’ are the subjects of trade mark registrations of
affiliates of Legatum 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.

FOREWORD

FOREWORD
The world has changed a lot in the last five years. The financial crisis of 2008 caused many western
countries to reassess and question the foundations of their economic prosperity. The Arab Spring brought
the taste of freedom to millions of people across the Arab world for the first time. The hostage crisis in
Algeria reminded us of the continued threat posed by international terrorism. And most recently of all,
the ongoing civil war in Syria has sparked a fresh debate about Western responsibility to secure global
peace and stability.
In an age when data and information are the new currency, we are never short of material for analysis,
punditry, and reaction. At any given moment we have at our fingertips snapshots that provide us with
insights about events, often as they are happening. In such an environment, it can be wise to take a step
back and view a situation from a distance.
This year the Prosperity Index offers five consecutive years of comparable data. When assessing national
prosperity, this allows us to step back from the twists and turns of specific circumstances and, instead,
consider the general direction of travel.
And so what do we observe from this vantage point? We see, for example, that despite the tumultuous
events of the last five years, global prosperity is actually still on the rise. We see also that Latin America
is on the rise, demonstrating steady economic growth. As European countries have fallen from being
among the top performing economies in the world, they have been replaced at the top predominantly by
Asian countries. This year’s Prosperity Index also highlights individual countries that are increasing in
prosperity (such as Bangladesh, Kazakhstan, and Germany), and our data shows that others, including
the US and the UK, face considerable challenges. All of this, and more, is explained and examined in the
following pages.
The Legatum Prosperity Index™ incorporates a mixture of traditional economic indicators alongside
measurements of wellbeing and life satisfaction. Covering 96% of the world’s population and more
than 99% of global GDP it provides a more complete picture of global prosperity than any other tool
of its kind.
The Prosperity Index is central to the Legatum Institute’s mission to explore the foundations of national
success. I hope you find the 2013 edition inspiring and engaging.
Yours,

Dr Jeffrey Gedmin
President and CEO, Legatum Institute


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3|

ENTREPRENEURSHIP
& OPPORTUNITY

GOVERNANCE

EDUCATION

HEALTH

SAFETY & SECURITY

PERSONAL
FREEDOM

SOCIAL CAPITAL

Norway
Switzerland
Canada
Sweden
New Zealand
Denmark
Australia
Finland
Netherlands
Luxembourg
United States
Ireland
Iceland
Germany
Austria
United Kingdom
Belgium
Singapore
Hong Kong
France
Japan
Taiwan
Spain
Slovenia
Malta
South Korea
Portugal
United Arab Emirates
Czech Republic
Uruguay
Costa Rica
Italy
Kuwait
Poland
Chile
Estonia
Cyprus
Slovakia
Israel
Panama
Hungary
Trinidad and Tobago
Lithuania
Malaysia
Argentina
Brazil
Kazakhstan
Latvia
Bulgaria
Saudi Arabia
China
Thailand
Croatia
Greece
Romania
Jamaica
Mongolia
Belarus
Mexico
Sri Lanka
Russia
Vietnam
Uzbekistan
Ukraine
Belize
Philippines
Colombia
Paraguay
Indonesia
Dominican Republic
Montenegro

ECONOMY

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71

COUNTRY

OVERALL
PROSPERITY RANK

THE LEGATUM PROSPERITY INDEX™ RANKINGS 2013

1
2
4
6
17
23
10
26
20
14
24
33
41
9
15
28
25
3
18
22
5
16
44
53
37
19
63
13
38
42
40
52
11
49
30
65
57
67
29
31
83
64
94
8
58
32
45
73
88
21
7
12
79
80
82
124
102
114
27
74
50
43
71
72
66
39
47
34
35
76
126

6
4
16
1
15
2
11
3
8
5
13
14
7
18
17
9
24
12
10
21
25
22
29
23
19
20
31
26
27
53
44
39
33
42
38
28
30
36
32
35
52
34
40
45
57
49
55
37
43
46
66
62
51
48
50
56
60
67
73
88
47
68
92
61
74
79
63
94
87
76
59

12
1
8
4
2
3
7
5
10
6
11
14
18
17
15
9
16
13
23
19
21
33
26
30
20
31
37
36
35
29
32
40
42
39
24
25
22
43
27
61
38
46
45
34
92
59
97
41
71
55
65
57
51
52
67
63
78
124
66
48
115
64
119
121
72
56
60
109
77
90
68

4
27
3
14
1
18
2
6
12
46
5
11
13
15
17
30
16
37
43
19
21
10
8
9
45
7
33
39
24
51
53
36
56
38
59
35
32
23
25
61
22
76
28
40
47
77
41
29
49
50
54
71
52
34
48
85
55
20
82
44
26
87
66
31
94
73
80
99
83
90
72

5
3
11
12
20
14
17
16
7
1
2
15
13
4
9
19
10
18
30
8
6
25
24
26
34
21
29
35
27
40
48
22
37
32
49
41
31
28
33
51
38
58
43
53
42
62
60
45
47
46
68
59
36
23
63
74
93
39
52
76
44
79
65
86
64
98
80
88
94
89
50

6
11
7
3
15
8
16
4
17
10
31
5
2
21
14
22
20
13
1
30
25
9
27
12
29
18
19
24
23
28
46
39
33
26
37
35
51
36
113
48
32
42
34
64
52
82
66
45
40
84
92
96
38
43
47
58
44
50
104
121
98
53
63
55
71
112
130
73
70
97
41

2
15
1
4
5
9
3
17
14
7
16
8
6
12
19
13
18
53
24
21
48
31
23
25
22
64
20
54
50
10
11
38
49
55
27
71
46
75
112
35
68
29
101
110
32
26
52
96
57
131
111
129
93
134
66
30
74
104
81
60
114
88
78
107
58
44
51
33
105
36
97

1
8
6
10
2
3
4
7
5
17
9
11
13
15
14
12
21
34
28
42
23
30
27
37
20
66
43
48
46
52
44
29
58
31
67
40
86
47
19
41
71
78
54
80
57
69
22
93
87
26
25
16
116
107
114
59
38
24
76
35
62
92
18
36
55
61
53
45
32
60
121


EDUCATION

HEALTH

SAFETY & SECURITY

PERSONAL
FREEDOM

SOCIAL CAPITAL

LOW RANKING COUNTRIES (30)

GOVERNANCE

LOWER MIDDLE RANKING COUNTRIES (41)

ENTREPRENEURSHIP
& OPPORTUNITY

Botswana
Nicaragua
Ecuador
Peru
Serbia
South Africa
Venezuela
Macedonia
Kyrgyzstan
Azerbaijan
Morocco
Albania
Georgia
El Salvador
Bolivia
Turkey
Jordan
Moldova
Guatemala
Tunisia
Laos
Namibia
Tajikistan
Armenia
Honduras
Bosnia-Herzegovina
Lebanon
Algeria
Ghana
Iran
Nepal
Bangladesh
Senegal
Rwanda
India
Zambia
Egypt
Niger
Cambodia
Mali
Burkina Faso
Benin
Uganda
Cameroon
Kenya
Tanzania
Congo (Republic)
Malawi
Djibouti
Mozambique
Syria
Nigeria
Zimbabwe
Mauritania
Ethiopia
Liberia
Sudan
Sierra Leone
Iraq
Côte d’Ivoire
Pakistan
Angola
Haiti
Guinea
Yemen
Togo
Burundi
Afghanistan
Congo (DR)
Central African Republic
Chad

UPPER MIDDLE RANKING COUNTRIES (41)

ECONOMY

72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
108
109
110
111
112
113
114
115
116
117
118
119
120
121
122
123
124
125
126
127
128
129
130
131
132
133
134
135
136
137
138
139
140
141
142

COUNTRY

OVERALL
PROSPERITY RANK

HIGH RANKING COUNTRIES (30)

96
56
54
48
127
85
60
119
89
55
36
98
99
69
46
70
110
125
68
86
51
97
100
116
90
117
93
61
123
91
92
77
95
108
62
103
101
84
78
121
109
132
105
87
133
111
59
134
130
106
129
112
120
136
122
141
113
137
75
81
107
115
142
138
131
139
140
135
118
128
104

69
107
78
77
82
41
89
65
84
70
81
80
72
90
98
54
64
71
85
58
102
96
108
75
99
91
83
95
101
93
111
106
117
103
104
110
86
139
105
125
124
131
112
116
97
121
120
128
134
115
119
113
122
118
135
129
109
133
130
127
100
126
138
137
123
132
136
114
141
142
140

28
95
101
79
82
53
127
74
117
110
69
91
44
73
98
50
58
99
85
86
80
47
111
89
107
113
104
103
62
120
100
88
83
49
54
87
105
81
75
112
84
76
106
128
108
102
132
70
93
94
96
129
141
130
118
126
134
114
137
135
123
133
140
136
131
125
116
142
138
122
139

92
88
69
81
62
91
58
75
68
79
107
70
67
95
86
89
64
60
102
84
103
100
65
42
93
78
63
74
109
57
104
101
121
111
97
110
98
139
106
140
130
118
117
112
115
119
108
116
131
127
96
126
105
128
122
135
125
136
113
138
124
129
114
134
133
120
123
137
132
142
141

104
85
82
84
54
105
69
56
73
91
78
57
92
83
102
55
66
81
99
70
113
115
96
87
77
61
72
71
100
67
97
95
108
103
109
134
75
111
107
122
125
112
126
124
117
123
127
106
116
135
90
121
120
118
130
137
119
141
101
133
110
131
136
132
114
128
138
129
139
140
142

68
74
105
91
69
106
110
72
89
78
94
49
60
83
95
99
77
75
100
56
62
85
57
65
79
61
87
108
67
123
101
109
88
86
120
117
116
76
90
59
81
54
134
103
127
115
102
114
80
111
137
135
133
93
128
124
138
125
132
131
140
129
118
119
126
107
122
139
142
136
141

41
43
45
70
72
82
84
90
106
109
94
108
73
85
34
130
136
115
76
122
80
39
113
117
89
127
124
132
79
126
77
65
42
99
100
59
142
47
118
61
40
28
91
92
98
116
87
95
102
63
133
103
120
125
69
62
139
56
141
37
135
137
138
83
140
86
119
123
128
67
121

109
82
115
113
102
65
68
106
33
79
90
126
138
100
105
128
108
91
75
137
77
99
70
129
103
104
125
96
112
120
95
132
94
127
133
56
89
85
135
39
98
140
51
111
73
49
134
101
88
117
124
63
72
81
122
74
50
83
110
136
130
97
64
131
119
142
139
123
84
141
118


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CONTENTS

CONTENTS
2|

Foreword

53 |

How We Build the Index: Methodology

55 |

Anomalies

56 |

Prosperity Illustrated

57 |

Acknowledgements

THE WORLD IN 2013

3|

Prosperity Index Rankings Table 2013

7|

Key Findings: The World in 2013

FIVE YEAR TRENDS

9|

em

Life Expectancy

of
Law

E

le

CHOIC

Ru

R&D

plo
ym

en

t

RS

ENEU

EPR

ENTR

The Rise of All Sub-indices

Flight

Rig

hts

Human

economy

ver

Go
e

nc

na

onme

BUSIN

ESS

5|

nt

donations

Internet Servers
STAR
T-

UP

Mapping Prosperity 2013

13 |

Europe’s Loss is Asia’s Gain
Success in the Sub-regions
Latin America: Economy on the Rise
Health Improvements in sub-Saharan Africa

tio
ra

Pol
it

er

ica
l

ch

Tea
pil
Pu

inﬂation

immigration

Envir

11 |

14 |

GDP

Year-On-Year Rankings Table 2009–2013

14 |

education

10 |

14 |

DEMOCR
ACY

sation

immuni


key findings 2013

The World in 2013
BANGLADESH

OVERTAKES

India

Mexico

MOVES NORTH OF

IN OVERALL PROSPERITY

DROPS
OUT OF

Brazil

in the Economy
sub-index

UK

TOP 20

SLIPS
FROM

1. US drops out of top 20 in

the Economy sub-index.
This year, the US has moved
down four places to 24th in the
Economy sub-index. Countries
that have overtaken the US in
the Economy sub-index include
New Zealand (17th) and South
Korea (19th), among others (for
more, see page 35).

7|

13 TO
16

2. Mexico overtakes

Brazil in the Economy
sub-index.
Mexico has increased seven
places to 27th in the Economy
sub-index, overtaking Brazil
(32nd). However, Mexico
still trails Brazil in the overall
Prosperity Index, ranking 59th
compared to Brazil at 46th.

in the Economy
sub-index

LATIN AMERICA
AND THE CARIBBEAN
RISE ABOVE

WORLD AVERAG
WORLD AVE
ORLD AVERA
RLD ER
ERAG
IN OVERALL
PROSPERITY
3. Bangladesh overtakes

India in overall
Prosperity.
Bangladesh (103rd) ranks
above India (106th) in the
Prosperity Index for the
first time in 2013. Although
Bangladesh’s rank has
remained constant since last
year, India has declined five
places in the same period. India
has fallen down the Prosperity
Index rankings consistently
over the last five years.

in the Economy sub-index

4. Latin America and the

Caribbean rise above the
world average in the
Economy sub-index FOR
THE first time in 2013.
Countries showing big
improvements include Mexico
(27th), Chile (30th), Panama
(31st) and Brazil (32nd), as well
as Nicaragua (56th) and the
Dominican Republic (76th).

5. The UK declineS from

13th to 16th overall
this year.
The UK has moved down
three places to 16th in
overall Prosperity, as a result
of decreases in the rankings
for six out eight sub-indices
since last year. The UK has
been leapfrogged by Austria
(15th), Germany (14th), and
Iceland (13th).

LEGATUM INSTITUTE | The 2013 Legatum Prosperity Index™

key findings 2013

ENTREPRENEURSHIP
& OPPORTUNITY

1 1 1 1 1

NORWAY

9 10
OUT OF

OF THE

THE

TOPS THE INDEX FOR THE
FIFTH CONSECUTIVE YEAR

BEST COUNTRIES

ARE IN

BEST

EUROPE

SCORING SUB-INDEX IN

SUB-SAHARAN AFRICA IS

8 15

PERSONAL FREEDOM

OF THE

WORST COUNTRIES FOR

PERSONAL FREEDOM

BOTSWANA
IS THE HIGHEST RANKING
SUB-SAHARAN COUNTRY

ARE IN

MENA

5

CONSECUTIVE YEARS

6. Eight of the bottom

15 countries on the
Personal Freedom
sub-index are in the
MENA region.
Turkey (130th), Saudi Arabia
(131st), Algeria (132nd),
Syria (133rd), Jordan (136th),
Yemen (140th), Iraq (141st),
and Egypt (142nd) are in the
bottom 15 countries in the
Personal Freedom sub-index,
which measures factors such
as the guarantee of individual
freedom and social tolerance.

7. Norway tops the

Index for the fifth
consecutive year.
Norway ranks first in overall
Prosperity, as it has since
2009, confirming its place as
the most prosperous country
in the world for the fifth
consecutive year. The country
also ranks first in the Economy
and Social Capital sub-indices
in 2013.

8. Nine of the top ten

countries on the
Entrepreneurship &
Opportunity sub-index
are from Europe.
The top ten countries include
Sweden (1st), Denmark (2nd),
Finland (3rd), Switzerland
(4th), Luxembourg (5th),
Norway (6th), Iceland (7th),
Netherlands (8th), and
United Kingdom (9th). Hong
Kong makes up the top 10,
placing 10th in the sub-index.


9. Personal Freedom is

the sub-index in which
sub-Saharan African
countries rank highest.
Twenty-four sub-Saharan
countries rank in the top
100 in the Personal Freedom
sub-index. Benin (28th), Côte
D’Ivoire (37th), Namibia
(39th), Burkina Faso (40th),
and Botswana (41st), are
the five highest ranking
sub-Saharan countries in the
Personal Freedom sub-index.

10. Botswana is the highest

ranking Sub-Saharan
country for the fifth
consecutive year.
Botswana also ranks the
highest in the region in the
Governance sub-index (28th)
and is the second highest in
the Education sub-index (92nd)
after South Africa (91st).

| 8

FIVE YEAR TRENDS

FIVE YEAR

Trends

THIS YEAR, THE PROSPERITY INDEX INCLUDES
FIVE CONSECUTIVE YEARS OF COMPARABLE
DATA. LOOKING BACK ACROSS THE FIVE YEARS
OF INDEX DATA, SOME IMPORTANT TRENDS
APPEAR. THE FOLLOWING PAGES HIGHLIGHT
SOME OF THESE IMPORTANT TRENDS AND
DEVELOPMENTS IN GLOBAL PROSPERITY.

As well as an increase in overall global prosperity, this year for the first time every
sub-index has increased its score compared with 2009 (see graph). There are, however,
large variations between the sub-indices.
IN 2013

ALL SUB-INDICES
REPORTED

HIGHER AVERAGE
SCORES
THAN IN 2009

5 year change by Sub-Index

In many respects these variations reflect global events over the past half-decade.
Safety & Security and Governance have improved the least, reflecting in part
the uprisings in the Middle East and the perception in many countries that
politicians contributed to the financial crisis and ensuing recession (in Europe,
nineteen governments1 have been voted out of office since the crisis hit in 2008).
Furthermore, given the economic difficulties that followed, it is also not surprising
that the Economy sub-index has not grown significantly in the past five years.
There has been clearer progress in Education, Health, and Entrepreneurship &
Opportunity. Encouragingly, the Index shows that low-income countries improved
faster than high-income countries in these three areas, and low-middle income
countries improved faster in Education and Entrepreneurship & Opportunity).4

SUB-INDICES2
Average Score Change 2009-2013

0.15
Economy

9|

1.03
Entrepreneurship
& Opportunity

0.06

0.22

0.58

Governance

Education

Health

0.03

0.16

0.08

Safety
& Security

Personal
Freedom

Social
Capital


FIVE YEAR TRENDS

OVERALL PROSPERITY YEAR-ON-YEAR RANKINGS TABLE
2009–2013
COUNTRY

COUNTRY RANK
2009 2010 2011 2012 2013

COUNTRY

COUNTRY RANK
2009 2010 2011 2012 2013

COUNTRY

COUNTRY RANK
2009 2010 2011 2012 2013

Norway

1

1

1

1

1

Bulgaria

47

46

48

48

49

Bosnia-Herzegovina

Switzerland

8

8

8

9

2

Saudi Arabia

57

49

49

52

50

Lebanon

99

97

90

84

82

85

98

Canada

6

7

6

6

3

China

58

58

52

55

51

Algeria

Sweden

7

6

5

3

4

Thailand

54

52

45

56

52

Ghana

91

79

88

100

99

89

90

78

87

100

New Zealand

3

5

4

5

5

Croatia

39

38

41

50

53

Iran

93

92

97

102

101

Denmark

2

2

2

2

6

Greece

36

39

40

49

54

Nepal

88

91

93

108

102

Australia

5

4

3

4

7

Romania

48

51

58

60

55

Bangladesh

95

96

95

103

103

Finland

4

3

7

7

8

Jamaica

52

55

55

62

56

Senegal

92

94

92

118

104

Netherlands

11

9

9

8

9

Mongolia

60

60

60

59

57

Rwanda

105

98

98

111

105

Luxembourg

11

10

Belarus

55

54

50

54

58

India

78

88

91

101

106

United States

10

10

10

12

11

Mexico

49

53

53

61

59

Zambia

98

101

101

110

107

Ireland

9

11

11

10

12

Sri Lanka

68

59

63

58

60

Egypt

87

89

89

106

108

Iceland

12

12

12

15

13

Russia

62

63

59

66

61

Niger

114

109

Germany

16

15

15

14

14

Vietnam

50

61

62

53

62

Cambodia

101

95

94

107

110

Austria

14

14

14

16

15

Uzbekistan

65

76

64

64

63

Mali

94

93

90

104

111

United Kingdom

13

13

13

13

16

Ukraine

63

69

74

71

64

Burkina Faso

112

112

Belgium

15

16

17

17

17

Belize

53

56

56

65

65

Benin

119

113

Singapore

17

17

16

19

18

Philippines

61

64

66

67

66

Uganda

102

99

100

117

114

Hong Kong

21

20

19

18

19

Colombia

64

65

61

69

67

Cameroon

99

102

99

115

115

France

18

19

18

21

20

Paraguay

69

67

57

68

68

Kenya

97

104

102

116

116

Japan

19

18

21

22

21

Indonesia

85

70

70

63

69

Tanzania

96

97

96

109

117

Taiwan

22

22

20

20

22

Dominican Rep.

71

68

72

81

70

Congo (Republic)

120

118

Spain

20

23

23

23

23

Montenegro

57

71

Malawi

105

119

Slovenia

23

21

22

24

24

Botswana

59

57

67

70

72

Djibouti

121

120

Malta

25

25

Nicaragua

73

87

86

91

73

Mozambique

104

103

103

124

121

South Korea

29

27

24

27

26

Ecuador

77

77

83

76

74

Syria

86

83

81

113

122

Portugal

25

26

25

26

27

Peru

72

73

68

72

75

Nigeria

103

106

104

123

123

UAE

27

30

27

29

28

Serbia

79

76

Zimbabwe

110

110

109

135

124

Czech Republic

24

24

26

28

29

South Africa

67

66

69

74

77

Mauritania

122

125

Uruguay

32

28

29

31

30

Venezuela

76

75

73

80

78

Ethiopia

108

107

108

133

126

Costa Rica

30

33

34

37

31

Macedonia

70

72

76

75

79

Liberia

130

127

Italy

26

25

30

33

32

Kyrgyzstan

88

80

Sudan

106

100

105

125

128

Kuwait

34

31

35

38

33

Azerbaijan

94

81

Sierra Leone

128

129

Poland

28

29

28

32

34

Morocco

66

62

71

73

82

Iraq

131

130

Chile

35

32

31

34

35

Albania

92

83

Côte d’Ivoire

126

131

Estonia

31

35

33

35

36

Georgia

93

84

Pakistan

107

109

107

132

132

Cyprus

30

37

El Salvador

81

78

77

90

85

Angola

129

133

Slovakia

37

37

32

36

38

Bolivia

84

82

85

95

86

Haiti

138

134

Israel

33

36

38

40

39

Turkey

80

80

75

89

87

Guinea

127

135

Panama

42

40

37

42

40

Jordan

75

74

65

77

88

Yemen

100

105

106

134

136

Hungary

38

34

36

39

41

Moldova

83

86

79

84

89

Togo

136

137

Trinidad & Tobago

46

44

47

51

42

Guatemala

82

81

84

97

90

Burundi

137

138

Lithuania

40

42

44

43

43

Tunisia

56

48

54

78

91

Afghanistan

140

139

Malaysia

43

43

43

45

44

Laos

82

92

Congo (DR)

141

140

Argentina

44

41

39

41

45

Namibia

74

71

80

83

93

Central Afr. Rep.

109

108

110

142

141

Brazil

45

45

42

44

46

Tajikistan

86

94

Chad

139

142

Kazakhstan

51

50

46

46

47

Armenia

98

95

Latvia

41

47

51

47

48

Honduras

79

85

87

96

96
*In 2012 the number of countries in the Index was
increased to 142 (from 110 countries in 2009–2011).
This should be borne in mind when looking at ranking
movement over the five years. This is particularly
relevant for lower ranking countries that appear to
have declined signiﬁcantly from 2009-2013.


| 10

FIVE YEAR TRENDS

MAPPING
PROSPERITY

+0.557
Central Asia

+0.485
Sub-Saharan Africa

+0.450
Southeast Asia

2013
TOP TEN COUNTRIES
1

Norway

2

Switzerland

3

Canada

4

Sweden

5

New Zealand

6

Denmark

7

Australia

8

Finland

9

Netherlands

10

Luxembourg

BOTTOM TEN COUNTRIES
133 Angola
134 Haiti
135 Guinea
136 Yemen
137 Togo
138 Burundi
139 Afghanistan
140 Congo (DR)
141 Central African Republic
142 Chad

11 |


FIVE YEAR TRENDS

AVERAGE CHANGE IN PROSPERITY INDEX SCORE 2009–2013

+0.438
East Asia

+0.414
South America


+0.357
Central America

+0.318
South Asia


+0.198
Middle East

+0.186
Eastern
Europe

+0.028 +0.019 -0.003
+0.087
Australia North Northern
North
America & Oceania Africa Europe




| 12

FIVE YEAR TRENDS

EUROPE’S LOSS
IS ASIA’S GAIN

Since 2009, four Asian countries have risen into the top 20 on the Economy
sub-index: China (7th), Thailand (12th), Taiwan (16th) and South Korea (19th).
By contrast, five European countries have dropped out: France (22nd), Denmark
(23rd), Belgium (25th), Finland (26th), and Ireland (33rd) (see graph below). The
contrasting fortunes of these two groups point to a gradual change in the global
economic landscape.
The four Asian countries are outperforming the European nations on all but three
of the economic variables: capital per worker, satisfaction with living standards, and
access to adequate food and shelter. Furthermore, their recent performance in these
areas shows that they are catching up with their European competitors. For example,
citizens in the Asian countries reported a 7% increase in their satisfaction with living
standards (to 77%) and an 8% increase in their access to adequate food and shelter
(to 86%). By contrast, respondents in the European countries saw a decrease of 1%
in their satisfaction with living standards (to 83%) and a fall of 2% in those who felt
they had access to adequate food and shelter (to 92%).
There is, however, some bright news for Europe: Norway and Switzerland top the
Economy sub-index, and Sweden and Germany have risen up the ranks since 2009.

ASIA RISING, EUROPE FALLING
Economy Sub-Index Rankings 2009-2013

Singapore
Switzerland
Netherlands
Denmark
Canada
Japan
Sweden
Finland
Australia
Hong Kong
United States
Austria
Ireland
Belgium
Germany
France
Malaysia
New Zealand
Saudi Arabia

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20

Kuwait

22

Taiwan
South Korea
Thailand

25
26
27

UAE
China

33
34

Norway

13 |

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26

Norway
Switzerland
Singapore
Canada
Japan
Sweden
China
Malaysia
Germany
Australia
Kuwait
Thailand
UAE
Luxembourg3
Austria
Taiwan
New Zealand
Hong Kong
South Korea
Netherlands
Saudi Arabia
France
Denmark
United States
Belgium
Finland

33

Ireland


FIVE YEAR TRENDS

The Central Asian region recorded the largest increase in prosperity between
2009 and 2013 (see p11-12 top). Encouragingly, sub-Saharan Africa was second.
It is not surprising that many of the most developed regions in the world—such
as Europe and North America—recorded far smaller increases over the period,
suggesting that achieving higher levels of prosperity becomes increasingly difficult
as development progresses. One concern is the fact that North Africa saw the
smallest increase, suggesting that the upheaval in the region over the last couple
of years has, thus far, not ushered in a noticeable increase in prosperity. Only
Northern Europe registered a fall in prosperity since 2009 due to declines by
Denmark, Finland and Iceland.

SUB-REGIONAL
SUCCESS

Latin American and Caribbean countries passed an impressive milestone in 2013,
when the region surpassed the average score of the rest of the world on the Economy
sub-index (see graph p20). Despite the vast economic contrasts in Latin America, the
majority of countries are seeing consistent growth in the Economy sub-index.
The Latin American and Caribbean sub-region—mainly comprising developing
countries and emerging economies—is a region of contrasts. Historically, some
countries have been tipped for economic success, while others have been seen as
economic laggards. However, countries that have previously struggled economically
are now improving and are helping to propel the region forward in the Economy
sub-index. For example, the Dominican Republic ranks 76th in the Economy
sub-index in 2013, whereas in 2012 it ranked 102nd. Also, Nicaragua has moved
up 39 places to 56th in the past five years. Also in the last five years, every single
country in Latin America and the Caribbean—with the exception of Jamaica—has
improved its Economy sub-index score.

LATIN AMERICA
AND THE CARIBBEAN:
ECONOMY
ON THE RISE

Despite Sub-Saharan Africa Improving the most in Health sub-index very different
this success, Latin American and Caribbean countries still present
levels of development, with some countries facing greater challenges than others.
However, this growth in the Economy sub-index is a promising sign for the region.
All regions have improved their average Health score since 2009, with sub-Saharan
Africa showing the biggest rise (see graph below).
This is the result of large improvements in a number of variables. The region saw
health-adjusted life expectancy increase by 4.4 years during the period. In addition
to this, tuberculosis cases decreased by 105 per 100,000 people and infant mortality
fell by 23 per 1,000 births.

SUB-SAHARAN AFRICA:

MOST IMPROVED

REGION IN
HEALTH

These improvements were above the global average. Although this is to be expected
given that health outcomes in the region started from a lower level, it is encouraging
that the region is improving.

HEALTH SUB-INDEX REGIONAL PERFORMANCE
Average Score 2009-2013

1.10

0.64

0.46

0.42

0.40

Sub-Saharan Africa

Asia-Paciﬁc

Americas

Europe

MENA


1.

Anders Aslund, “Europe’s Voters Wisely Stick with
Frugal Leaders”, Bloomberg, September 29, 2013,
http://www.bloomberg.com/news/2013-09-29/
europe-s-voters-wisely-stick-with-frugal-leaders.html.
2. This analysis is based on a 110 countries between
the 2009 and 2013 editions of the Prosperity Index.
This does not include the 32 new countries added
in the 2012 Prosperity Index.
3. Luxembourg was added to the Index in 2012.
4. As deﬁned by the World Bank.

| 14

regional analysis

15 |


REGIONAL ANALYSIS

THE HEALTH OF

The Regions

THE 142 COUNTRIES IN THE PROSPERITY INDEX ARE DIVIDED INTO FIVE REGIONS.

ASIA-PACIFIC

AMERICAS

SUB-SAHARAN AFRICA

This year’s Index examines the changes
in prosperity within these five regions
over the last five years.
In some cases, where appropriate, the
regions are broken down further and
differences are examined between subregions. For example, for the purpose of
our analysis, it can be helpful to divide
the Americas between North America
(US and Canada) and Latin America
and the Caribbean.
All of the Regional Analysis is available
on our website—www.prosperity.com
—where you can also access all of
our data including our rankings and
analysis. You can also explore the data
for all of our 142 countries to generate
your own charts and graphs.

MIDDLE EAST AND
NORTH AFRICA (MENA)

EUROPE


| 16

REGIONAL ANALYSIS

ASIA-PACIFIC
New Zealand

5

Malaysia

44

Uzbekistan

63

Bangladesh

103

Australia

7

Kazakhstan

47

Philippines

66

India

106

Singapore

18

China

51

Indonesia

69

Cambodia

110

Hong Kong

19

Thailand

52

Kyrgyzstan

80

Pakistan

132

Japan

21

Mongolia

57

Laos

92

Taiwan

22

Sri Lanka

60

Tajikistan

South Korea

26

Vietnam

62

Nepal

94
102

FIVE YEAR SUB-INDICES PERFORMANCE 2009-20131
Economy

Overall Prosperity

E&O

Governance

Education

1

Asia-Paciﬁc
0

World Average
e
09

-1

13

Health

09

13

09

13

Personal Freedom

Safety & Security

09

13

Social Capital

-2

-3

09

10

11

12

13

09

13

The Asia-Pacific region encompasses a varied set of countries ranging
from highly developed nations, to fast-growing emerging markets,
and low-income and developing countries. The region includes
some of the world’s most prosperous nations, such as New Zealand
and Australia (ranked fifth and seventh respectively), and conversely
some of the lowest ranking countries, such as India—which has
seen major and continued declines in prosperity since 2009.
Since the middle of the twentieth century Asia has been a place
of rapid economic expansions, from the Tiger economies in the
1960s, to the epic rise of China (the ‘factory of the world’) in the
1990s, and the more recent development of South-East Asian
countries such as Vietnam. The 2013 Prosperity Index finds that,
for most countries in Asia, improvements in the Economy
sub-index coincide with an improvement in overall Prosperity.
The steady improvement of China’s overall Prosperity score since
2009 (see graph above) has predominantly been due to its very
strong performance in the Economy sub-index in the same fiveyear period. Countries such as Thailand, Malaysia, and Sri Lanka,

17 |

09

13

09

13

09

13

have also seen big improvements in their Economy scores, which
have contributed to their improvements in the overall Prosperity
Index. In other countries, such as Indonesia and Kazakhstan,
positive improvements in the Economy sub-index are near-equal
to changes overall, further emphasising the link between the two.
However, a country’s prosperity is not just determined by the
health of its economy. It is also important to have inclusive
political institutions, a guarantee of civil liberties, and human
capital development, which ensure an educated, free, and
healthy citizenry. These aspects of prosperity tend to increase in
importance as nations become more economically developed—
since in the early stages of development countries are focused on
delivering basic standards of living.
The importance of these other aspects of prosperity is evident
within the Asia-Pacific region, where some countries are seeing
improvements in overall prosperity, while simultaneously
experiencing declines in economic health. Singapore, for instance,
ranks 18th in the world overall and has seen a decline in its


REGIONAL ANALYSIS

PROSPERITY INDEX AND ECONOMY SUB-INDEX SCORE AVERAGE CHANGE 2009-20131

PROSPERITY INDEX SCORE AVG CHANGE

ECONOMY SUB-INDEX SCORE AVG CHANGE

3.5
3.0

Australia
New Zealand

PROSPERITY INDEX AND ECONOMY SUB-INDEX SCORE

2.5

Japan

2.0
South Korea
1.5

Hong Kong
Singapore
Philippines
Malaysia

Taiwan

1.0

Thailand

China

0.5

Vietnam
Uzbekistan

0.0

Indonesia
India

Kazakhstan
-0.5

Sri Lanka

Mongolia
Nepal

Bangladesh

-1.0

Cambodia

-1.5
Pakistan
-2.0
-2.5
-3.0

Economy sub-index score since 2009. However, improvements
in the Social Capital sub-index (up 15 places to 34th), in the
Education sub-index (up two places, to 37th) and in the Health
sub-index (also up six places, to 18th), have all contributed to
a rise in the overall Prosperity Index score. The improvements
in these sub-indices for Singapore are the result of good
performance in indicators such as the guarantee of political
rights, pupil to teacher ratios, and a 100% enrolment rate in
primary and secondary education (these figures stood at 90%
and 77% just six years ago).
Equally, Hong Kong has seen a moderate decline in the
Economy sub-index (see graph), but it has risen up the overall
Prosperity Index due to improvements in the Entrepreneurship &
Opportunity sub-index (up six places, to 10th). Hong Kong’s
improvement on the Entrepreneurship & Opportunity sub-index
is the result of ICT exports rising to 3.7% of all manufactured
exports (from 2.3% in 2008), as well as a spike in research and
development spending to 1.8% of GDP (up from 0.6% in 2009).

It has also become the safest country in the world according to
the Safety & Security sub-index (up 14 places to first). Hong
Kong can also boast the lowest levels of property theft in the
world (only 3% of people reported having had their property
stolen in the last 12 months) and the lowest assault rate globally
(less than 1% of people reported being assaulted in the last 12
months), which could explain why 89% of the population feel safe
walking alone at night.
The variety of countries in the Asia region provides an
opportunity to analyse the complex nature of prosperity.
While many Asian countries have become more prosperous as
a result of improvements in the Economy sub-index, other, more
developed states have begun to see improvements in other aspects
of prosperity. Their success demonstrates what is necessary once
economic development has been realised.
1.


This analysis is based on a 110 countries between the 2009 and 2013 editions
of the Prosperity Index. This does not include the 32 new countries added in the
2012 Prosperity Index.

| 18

REGIONAL ANALYSIS

AMERICAS
Canada

3

Trinidad and Tobago

42

Colombia

67

Venezuela

78

United States

11

Argentina

45

Paraguay

68

El Salvador

85

Uruguay

30

Brazil

46

Dominican Republic

70

Bolivia

86

Costa Rica

31

Jamaica

56

Nicaragua

73

Guatemala

90

Chile

35

Mexico

59

Ecuador

74

Honduras

96

Panama

40

Belize

65

Peru

75

Haiti

134

Economy

Overall Prosperity

E&O

Governance

Education

1

Americas
0

World Average
09

-1

13

Health

09

13

09

13

Personal Freedom

Safety & Security

09

13

Social Capital

-2

-3

09

10

11

12

13

09

13

With the exception of the US, all countries in the Americas
have improved their overall Prosperity Index score in the last
five years (see graph top right). This increase has been driven in
part by stronger economic performances of Latin American and
Caribbean countries in 2013, compared with 2009. In that period,
only Jamaica, Canada and the US did not improve their Economy
sub-index scores.
This year, Latin America and the Caribbean have risen above the
global average in the Economy sub-index for the first time, with
Mexico overtaking Brazil to lead the sub-region (see graph bottom
right). Chile and Panama also rank above Brazil, with Panama
moving up 11 places to 31st in the sub-index in 2013.
Although Latin American and Caribbean countries are at
various stages of development, the sub-region’s recent economic
performance points to a bright future. Nicaragua, Bolivia and
Paraguay have improved the most on the Economy sub-index,
followed by Panama, Honduras and Uruguay (see graph top right).
In 2013, these countries have all seen an increase in important
variables that contribute to the Economy sub-index, such as capital
per worker, high-tech exports, and self-reported employment status.

19 |

09

13

09

13

09

13

In 2013, both Brazil (an original BRIC country) and Mexico (a
“Next 11”1 country) improved their position on the Economy
sub-index as a result of increases in capital per worker, market
size and employment status. The improvement shown by Mexico
and Brazil on these variables mirrors that of some countries in
the region that have registered improvements in the Economy
sub-index—such as Panama, Honduras and Uruguay. While both
Brazil and Mexico saw a decline in their GDP growth rates in the
past three years, Brazil’s GDP growth rate fell by 6.6% between
2010-2013, while Mexico’s only fell by 1.4%. However, Mexico’s
unemployment rate is lower (5.3%) than Brazil’s (8.3%) and the
inflation rate in Brazil is higher than in Mexico.
The Economy sub-index is not the only positive story for Latin
America and the Caribbean. With the exception of Health
there has been an increase in all sub-indices since 2009. This has
resulted in a rise in overall Prosperity for the sub-region over
the last five years. Paraguay, Trinidad and Tobago, and Bolivia
have improved the most in overall Prosperity since 2009, while
Uruguay is the highest ranking country in Latin America and the
Caribbean on the Prosperity Index (30th).


REGIONAL ANALYSIS

OVERALL PROSPERITY INDEX SCORE (LEFT) COMPARED TO ECONOMY SUB-INDEX SCORE (RIGHT)
Average Change 2009-2013

0.50
Uruguay
1.85
Nicaragua
0.53
Bolivia

0.56
Paraguay

0.54
Trinidad
& Tobago

0.48
El Salvador

1.01
Honduras

0.47
Ecuador

0.26
Belize

Argentina
.02

Trinidad & Tobago

1.06
Panama

0.15

0.10
0.44

0.27
Jamaica

0.39
Colombia

0.43
Dominican
Republic

0.40
Nicaragua

0.47
Panama

Chile

0.35
Peru

0.16
Honduras

0.09
Mexico

0.37
Venezuela

Costa Rica
.03

0.14
Mexico

0.40
Ecuador

0.97
Uruguay

1.56
Bolivia

0.35
Costa Rica

Venezuela

1.30
Paraguay

Brazil
0.08

0.33
Guatemala

0.18
Canada

0.22
Argentina

0.32
Brazil

0.42
Peru

0.15
Belize

United
States

0.70
Dominican
Republic

0.85
El Salvador

0.69
Colombia

0.29
Guatemala

0.60
Chile

Canada
-0.07

-0.62
United States

-0.90
Jamaica

-0.01

ECONOMY SUB-INDEX PERFORMANCE OF
LATIN AMERICA* VS. WORLD AVERAGE 2009-2013
*includes the Caribbean

LATIN AMERICA
AND THE CARIBBEAN
WORLD AVERAGE

2009

2010

2011

Canada and the US, both ranking within the top 20 on the
Prosperity Index overall, still lead the region, demonstrating the
wide division in prosperity between North America2 and the rest
of the Americas. Canada, ranked third, leads the region overall.
The US, meanwhile, has fallen out of the top 20 in the Economy
sub-index. This drop in ranking was caused by a decline in the
following variables: gross domestic savings; high-tech exports;
access to adequate food and shelter; confidence in financial
institutions; and overall satisfaction with standards of living.
However, market size in the US has been rising constantly since
2009. In addition, the US has improved on a number of subjective

2012

OVERTAKES
THE REST OF THE WORLD
FOR THE FIRST TIME

2013

economic variables such as expectations of the economy, which
may suggest that the US economy is stabilising. Although the
last couple of years have seen Latin American and Caribbean
states close the gap to their more prosperous North American
neighbours, wide variations in prosperity still remain.

1.

2.


Goldman Sachs, BRICS and Beyond, Chapter 13: Beyond the BRICs: A Look at the Next 11,
pp. 159-164, (New York: The Goldman Sachs Group, 2007), http://www.goldmansachs.
com/our-thinking/archive/archive-pdfs/brics-book/brics-full-book.pdf
For the purpose of this analysis, North America refers only to Canada and the United
States of America.

| 20

REGIONAL ANALYSIS

SUB-SAHARAN AFRICA
Botswana

72

Burkina Faso

112

Mozambique

121

Angola

133

South Africa

77

Benin

113

Nigeria

123

Guinea

135

93

Namibia

Uganda

114

Zimbabwe

124

Togo

137

Ghana

100

Cameroon

115

Mauritania

125

Burundi

138

Senegal

104

Kenya

116

Ethiopia

126

Congo (DR)

140

Rwanda

105

Tanzania

117

Liberia

127

Central African Republic

141

Zambia

107

Congo (Republic of)

118

Sudan

128

Chad

142

Niger

109

Malawi

119

Sierra Leone

129

Mali

111

Djibouti

120

Côte d’Ivoire

131

Economy

Overall Prosperity

E&O

Governance

Education

1

World Average
e
0

09

-1

13

Health

09

13

09

13

Personal Freedom

Safety & Security

09

13

Social Capital

-2

Sub-Saharan Africa
-3

09

10

11

12

13

09

13

Countries in sub-Saharan Africa have historically faced
many economic, political, and social challenges. Over the last
five years, however, countries that have historically performed
poorly on many development indicators—Ethiopia and
Zimbabwe, for example—are showing improvements
in key sub-indices, including Education, Economy, and
Entrepreneurship & Opportunity.
Of the 25 lowest ranking countries in the Prosperity Index,
20 are from the sub-Saharan Africa region. Despite this,
these nations have experienced some of the biggest increases
in overall Prosperity over the last five years. For instance,
Ethiopia (126th overall), Zimbabwe (135th overall), and
Senegal (104th overall) have seen noticeable improvements,
all rising in their Economy sub-index ranks (up by six, 22, and
13 places respectively). Additionally, Senegal also improved
steadily in most other sub-indices. Zimbabwe was further
supported by an increase in its Health ranking.

21 |

09

13

09

13

09

13

However, on average, Personal Freedom has decreased
significantly in the last two years across the region (despite
being a relatively well-performing sub-index for many subSaharan African nations). Countries such as South Africa,
Ghana and Mali dropped out of the top 50 in the Personal
Freedom sub-index to 82nd, 79th, and 61st, respectively.
One of the key reasons for this decline is that citizens in all
three countries reported a drop in the perceived freedom to
choose the course of their lives. Mali also saw a significant
drop in civil liberties, while tolerance for immigrants
dropped in Ghana.
The Economy and Entrepreneurship & Opportunity
sub-indices show the biggest improvements in the region.
Sudan, Rwanda, and Burkina Faso have risen most on
the Entrepreneurship & Opportunity sub-index since
2012. Rwanda, for example, has experienced a significant
increase in the number of mobile phones per person, while


REGIONAL ANALYSIS

3 OF THE TOP 5

BIGGEST IMPROVING COUNTRIES IN THE

ECONOMY SUB-INDEX
SINCE 2009 ARE FROM

SUB-SAHARAN AFRICA

Sudan has experienced a decline in business start-up costs
to 11% of GNI per capita.
Vital improvements in economic variables in Zimbabwe,
Mozambique and the Democratic Republic of Congo
have also driven the region’s overall increase in prosperity.
This has been caused in part by a drop in inflation rates
throughout the region. While the Democratic Republic of
Congo decreased its inflation by two-thirds (to 6%) and
Mozambique decreased its inflation by 43% to just under
8%, the biggest change was in Zimbabwe, where inflation
fell from 24,412% to a relatively normal 6% since adopting
Enrolement rates in education
the US dollar.

SUB-SAHARAN AFRICA ENROLMENT RATES
IN EDUCATION (%)1
Prosperity Index Data 2013

Primary

Tertiary

Rwanda

99

36

7

Tanzania

98

35

4

Malawi

97

34

1

Zambia

95

75

21

AFRICA AVG.

80

47

9

Côte d'Ivoire

61

61

8

Nigeria

58

44

10

Djibouti

54

39

5

Liberia

41

45

33

Prosperity Index data 2013
(%)

Across the region, progress has been made in the Education
sub-index—net primary school enrolment now stands at
80%. However, this masks significant variations in success.
Countries such as Rwanda had a 99% enrolment rate in
2013, whereas in Nigeria this figure was only 58%.
Furthermore, many educational problems remain. Secondary
enrolment across the region now stands at 47% in 2013, and
enrolment in tertiary education is only 9%. Also, on average,
a worker in sub-Saharan Africa receives less than a year of
secondary education, and only 0.08 years of tertiary education.
Educational problems are exacerbated by ‘brain drain’ in
the region. Although levels of human flight have decreased
across African countries between 2012 and 2013, the average
level is still higher than in any other the region in the
Prosperity Index.

Secondary

Overall, progress in the Economy and Entrepreneurship
& Opportunity sub-indices is encouraging in the region
but needs to be sustained by progress in other aspects of
development and particularly in education. An educated
workforce will enable countries to spread the benefits of
foreign direct investment more widely and propel homegrown development.

1.


The graph above includes the sub-Saharan African countries with the highest and
lowest primary education enrolment rates.

| 22

REGIONAL ANALYSIS

MIDDLE EAST AND NORTH AFRICA (MENA)

28

Morocco

82

Lebanon

98

Syria

122

Kuwait

33

Turkey

87

Algeria

99

Iraq

130

Israel

39

Jordan

88

Iran

101

Yemen

136

Saudi Arabia

50

Tunisia

91

Egypt

108

Afghanistan

139

Economy

Overall Prosperity

E&O

Governance

Education

1

World Average
e
0

09

MENA

-1

13

Health

09

13

09

13

Personal Freedom

Safety & Security

09

13

Social Capital

-2

-3

09

10

11

12

13

09

13

Since the onset of the Arab Spring in 2011, the MENA region
has seen Syria descend into the horrors of civil war, Egypt—
the hope for a democratic renaissance—become politically
polarised, while the rest of the region is seeing little, if any,
democratic progress.
Aside from these cases, many countries in the region have
experienced minor or moderate protests that have not
culminated in democratic change and most political systems
remain intact. The 2013 Prosperity Index reflects much of this
and finds that the MENA region continues to be marked by
low scores on Governance indicators and on levels of Personal
Freedom. For the first time since 2009, the MENA region has
been overtaken by Latin America and the Caribbean in the
Governance sub-index. However, it is important to remember
that the transition from autocracy to democracy is often slow.
Moreover, oppressive and undemocratic regimes do not just
affect political organisation, but have deep social and economic
effects which can take decades to change.
The 2013 Prosperity Index shows that the MENA region has
not improved much in terms of Governance. In the last five years,
the region’s average score on the Governance sub-index—which
measures the effectiveness and accountability of government,

23 |

09

13

09

13

09

13

fair elections, rule of law, and political rights—has been steadily
declining. This is a trend that goes against the global average.
The countries showing the biggest declines in Governance
are those that have experienced (or are experiencing) radical
political upheaval and armed conflict (Egypt, Syria, Tunisia, and
Yemen), although the whole region scores low on Governance.
Out of the 16 countries in the MENA region, 11 are still
considered to be verging towards autocracy rather than
democracy—according to data that measure the type of
government in a country.1 Political rights are rarely assured in the
region, with only Israel, Turkey, and Tunisia performing above the
global average on this metric. Moreover, the pervasive lack of stable
and guaranteed rule of law means that both citizens and potential
investors continue to face ambiguity in terms of the stability and
application of the legal system (10 out of 16 countries in the region
score negatively on the measure of rule of law). 2
Countries in the region also rank lowly on the Personal
Freedom sub-index. Regionally, 12 out of the 16 countries
rank in the bottom 30 on the Personal Freedom sub-index.
The reason for this is the region’s poor record of guaranteeing
civil liberties for its citizens. Only Israel’s3 score for civil liberties


REGIONAL ANALYSIS

GOVERNANCE SUB-INDEX PERFORMANCE 2009-2013

DEMOCRACY WITHIN THE
MENA REGION

Australia/New Zealand
3.0

North America

2.0

Israel

MORE DEMOCRATIC

1.0

Europe

WORLD AVERAGE
Asia

2009

•

•

•

2013

is equivalent to those recorded by OECD countries. More striking is that, since 2010,
most MENA countries have either remained at their low levels on the measure for civil
liberties or have decreased.
Those countries which have stagnated in civil liberties, such as Lebanon, Morocco, and
Algeria, did not experience governmental upheavals during the Arab Spring. Instead,
the ruling government conceded to some constitutional reforms in exchange for
preserving their power. While many other countries, such as Saudi Arabia, the UAE,
Yemen, Kuwait, and Turkey have actually seen civil liberties drop in the last few years
due to efforts to clamp down on dissidents or civil unrest. Surprisingly, Tunisia is the
only country in the region that has seen civil liberties increase. Despite the current
political unrest and turmoil, the country has made efforts to ensure that civil liberties
are guaranteed. This has occurred through such initiatives as the Independent High
Authority for Elections and a surge of female political participation.
In order for countries to achieve sustainable prosperity, political institutions must
guarantee certain universal rights and freedoms. Currently the MENA region is still
not showing signs of improvements in Governance and Personal Freedom, though any
political transitions towards liberal democracy that may have started in recent years,
will take decades to become fully established.
1.

This is deﬁned as the extent to which a society is
autocratic or democratic. This measure depends
on the competitiveness of executive recruitment;
constraints on chief executives; and the regulation
and competitiveness of political participation.
2. This is deﬁned as the extent to which individuals

within a society respect property rights, the police
and the judiciary system, as well the quality of
police and legal safeguards, ranging between +2.5
to -2.5, with negative values indicating a failure to
guarantee rule of law.
3. This does not include the Palestinian territories.


Egypt

Kuwait

Lebanon

Morocco

Sub-Saharan Africa

-2.0

Iraq
Iran
Algeria
UAE
Afghanistan
Jordan
Yemen

Latin America and the Caribbean
MENA

WORLD
AVERAGE

Saudi Arabia
Syria

-1.0

Turkey

Tunisia

0.0

MORE AUTOCRATIC

13 OUT OF 16
COUNTRIES WITHIN
MENA ARE FAILING
TO GUARANTEE
POLITICAL RIGHTS

| 24

REGIONAL ANALYSIS

EUROPE
Norway

1

United Kingdom

16

Cyprus

37

Ukraine

64

Switzerland

2

Belgium

17

Slovakia

38

Montenegro

71

Sweden

4

France

20

Hungary

41

Serbia

76

Denmark

6

Spain

23

Lithuania

43

Macedonia

79

Finland

8

Slovenia

24

Latvia

48

Azerbaijan

81

Netherlands

9

Malta

25

Bulgaria

49

Albania

83

Luxembourg

10

Portugal

27

Croatia

53

Georgia

84

Ireland

12

Czech Republic

29

Greece

54

Moldova

89

Iceland

13

Italy

32

Romania

55

Armenia

95

Germany

14

Poland

34

Belarus

58

Bosnia-Herzegovina

97

Austria

15

Estonia

36

Russia

61

Economy

Overall Prosperity

E&O

Governance

Education

Europe

1

0

World Average
Ave
e
erage
09

-1

13

Health

09

13

09

13

Personal Freedom

Safety & Security

09

13

Social Capital

-2

-3

09

10

11

12

13

09

13

The 2013 Prosperity Index reveals that, while the majority of
European countries are becoming more prosperous, some are doing
so faster than others.
It is perhaps unsurprising that Germany has recorded the highest
increase in overall Prosperity since 2009 (see graph top right). What
may be surprising is that some, though not all, of those countries
behind Germany are newer members of the European Union from
Eastern Europe. The evidence indicates that many of these states
are becoming increasingly entrepreneurial, helping them to improve
their level of overall Prosperity.
One inescapable factor that unites the continent is its poor
economic performance over the last five years. Following an increase
in 2011, the continent has fallen on the Economy sub-index for the
second year in a row. Europe’s declining score contrasts with that of
the rest of the world, which has seen an average increase in 2013.

25 |

09

13

09

13

09

13

Despite the bleak economic picture, there are some bright
spots. New EU members from Eastern Europe, including
Slovakia, Latvia, and Poland have witnessed a marked rise in the
Entrepreneurship & Opportunity sub-index since 2009 and are
catching up to the older EU member states (see graph centre right).
Technological and institutional factors are propelling the rise of
the new member states. The number of secure internet servers per
million people has increased by an average of 237 servers across the
new member states,1 above the increase in the world average of 198
servers. Fifteen percent more households report owning a mobile
phone (the increase in world average was 9% over the period) and
business start-up costs fell by an average of 1.7% of GNI per capita.
Although many new members are catching up, particularly to
Mediterranean countries, there still exist significant technological,
economic, and institutional disparities between the majority of old


Change in Prosperity Index score
(2009-2013)

REGIONAL ANALYSIS

CHANGE IN PROSPERITY SCORES: EUROPE2
Overall Prosperity Index Average Score 2009-2013

Norway
Sweden

Switzerland
Denmark

Netherlands
Ireland

United Kingdom

Iceland

Austria Germany

Finland

Belgium
France
Spain

Slovenia
Portugal

Czech Republic
Italy

Poland

Slovakia

Estonia

Hungary

Lithuania
Bulgaria

Romania

Croatia

Greece

Belarus

Latvia
Ukraine

Russia

Macedonia
Moldova

member states and the majority of new
ones. Where there is less of a gap between
the two groups is how people feel about
their country and the direction in which
it is heading. Since 2009, the number of
citizens in the new member states who
believe that working hard allows people to
get ahead in life and those who are satisfied
with the education system has increased. By
contrast, the number of citizens in the old
member states who believe that children
have the opportunity to learn in their
country, that approve of their government,
and that report positive expectations of
their economy has decreased. If these trends
continue, the future could see some new
states of the European Union overtaking
the old.

OLD VS. NEW EU MEMBER STATES
ENTREPRENEURSHIP & OPPORTUNITY
SUB-INDEX SCORE (2009-2013)

CHANGE IN SURVEY RESULTS %
(2010-2013)
-5.6

-5.8

+4.4

OLD EU
MEMBERS

-1.7
+0.8

Work hard
and you'll
get ahead

Positive
expectations
of the
economy

Approve
of the
government

Satisfaction
with
educational
qualiﬁcations

Children
learning

+6.1

+1.3

+2.3

+1.2

+2.5

NEW EU
MEMBERS

2009

2010

2011

2012

2013

OVERALL PROSPERITY INDEX PERFORMANCE
Average Score 2009-2013


2013

2012

2011
2010

Old member states are: Belgium, Germany, Greece,
France, Ireland, Italy, Netherlands, Portugal,
Spain and the United Kingdom. These states were
selected because they are either founding members
or countries that joined in the 1970s or 1980s. New
member states are: the Czech Republic, Estonia,
Hungary, Latvia, Lithuania, Poland, Slovakia,
Slovenia, Bulgaria and Romania. These are states
that joined after 2000. The two groups are deﬁned
in this way, with no member states who joined
in the 1990s being included in either group, so as
to compare two groups that have vastly different
experiences of EU membership.
2. This analysis is based on a 110 countries between
the 2009 and 2013 editions of the Prosperity Index.
This does not include the 32 new countries added
in the 2012 Prosperity Index.

2009

1.

EUROPE
GLOBAL
AVERAGE

| 26

MILLENNIUM DEVELOPMENT GOALS


Past Successes, New Challenges
s

Despite the mixed results, developed nations and international organisations—such as the
IMF and the OECD—have committed funds to the achievement of the Declaration’s
goals and this global effort has drawn much attention to international development
issues. With the 2015 deadline now looming, it is important to consider which new goals
the international community should focus on. An important step towards defining these
new goals is to assess the impact of the 2000–2015 programme. By assessing progress
and examining what may have been overlooked we can shed light on what should be
considered for the future.
Goal 2 aims to achieve universal primary education and, in this regard, considerable
progress has been made over the past decade. The gap between developing and
developed2 countries in primary enrolment rates has decreased since 2010. This has
resulted in a marginal difference in 2013 (see graph right). However, in developing
countries secondary school enrolment rates are significantly lower than primary rates,
and tertiary rates are lower still. The most striking difference between the regions is that
those with lower income levels see the biggest fall in enrolment from primary through
to tertiary. For example, while there is less than a 20% difference between sub-Saharan
Africa and Western Europe in primary education enrolment, this gap increases to
61% at secondary and 56% at tertiary level. The gap closes slightly at tertiary level, but
predominantly because of falling rates in developed regions rather than increasing rates in
sub-Saharan Africa.
The MDGs set specific targets for primary but not secondary school enrolment.
However, the preliminary Sustainable Development Goals (SDGs) for the post–2015
agenda, which were outlined in the UN Secretary-General’s High-level Panel’s recent
report,3 include a provision for the “access to lower secondary education”. Moreover, data
reveal that the situation has begun to improve, with secondary enrolment rates rising
in sub-Saharan Africa and South Asia since 2010 (see graph far right). The Legatum
Prosperity Index™ finds that, while the amount of secondary education per worker
has increased by over 50% in South Asia over the last four years, the sub-Saharan
African average has increased by less than 7%. By focusing on secondary education, the
post–2015 targets aim to address this problem.

THE GOALS
1. Eradicate extreme poverty and hunger

2. Achieve universal primary education

3. Promote gender equality and empower women

4. Reduce child mortality

5. Improve maternal health

6. Combat HIV/AIDS, malaria and other diseases

7. Ensure environmental sustainability

8. Create a global partnership for development
with targets for aid, trade and debt relief

Goal 4 aims to reduce under-five mortality by two-thirds between 1990 and 2015.4
Given that under-five mortality had decreased by only 41%, worldwide until 2011,5 very
rapid progress would be needed to achieve the target by 2015, which has so far only been
met in East Asia and North Africa.6 Child mortality is highest in the world’s poorest
regions and child deaths increasingly occur at or around the time of birth.7

27 |


MDG icons © the United Nations

et in the year 2000 by the United Nations Millennium Declaration,1 at
what was then the largest summit of global leaders in history, the
Millennium Development Goals (MDGs) were created to tackle some
of the biggest problems affecting the world’s developing countries. To
date, none of the Declaration’s eight goals has been fully met. Some
regions, however, have achieved more than others—Eastern Asia and
Northern Africa present better results than sub-Saharan Africa, for example.

Enrolement rates in education
Prosperity Index data 2013
MILLENNIUM DEVELOPMENT
(%)

2

AVERAGE REGIONAL
ENROLMENT RATES IN
SECONDARY EDUCATION*

GOALS

ENROLMENT RATES IN EDUCATION:
SUB-REGIONAL BREAKDOWN

2

Prosperity Index Data 2013

%
Primary

Secondary

Tertiary

North America
100

96.7

98.8

96.0

Western Europe

MENA
Latin America
and the Caribbean

80

97.9

92.3

South Asia

Sub-Saharan Africa

65.1

Eastern Europe

Southeast Asia

60

107.6

93.5

56.4

MENA

91.6

81.1

32.9

South Asia
40

87.3

59.2

15.6

Southeast Asia
2010

•

•

2013

95.6

70.9

33.8

Latin America and the Caribbean

92.8

83.2

38.6

Sub-Saharan Africa
*This analyis is based on 110 countries between the 2009 and 2013 editions of the
Prosperity Index.


80.3

46.7

9.0

| 28

Average Infant Mortality rates
(per 1000 live births)


AVERAGE INFANT MORTALITY RATES
(PER 1,000 LIVE BIRTHS)*

4

2010

2013

It is therefore encouraging that according to
Prosperity Index data, the largest decrease
in infant mortality has been experienced in
sub-Saharan Africa (see graph left).8 In fact,
nine out of the ten countries with the largest
reductions in infant mortality between 2010
and 2013 were in this region.9 Despite this,
infant mortality rates in sub-Saharan Africa
were still nearly three times higher than
the world average in 2013, ie 56 deaths per
1,000 live births compared with 20 deaths.

WORLD
AVERAGE
26.8

20.1

MENA
22.9

17.2
Europe

6.2

Significant progress in the goal for child
mortality is unlikely to be achieved without a
large reduction in the spread of disease. A target
contained within Goal 4 aims to increase the
proportion of one-year-olds immunised against
measles. Over the last four years, immunisation
against measles has increased in Asia, subSaharan Africa and the MENA region (see
graph bottom left), with the highest increase
found in Asia where 4.4% more children were
immunised between 2010 and 2013.10

4.9

Asia-Paciﬁc
23.8

19.9

Americas
20.7

15.9

Change in immunisation rates 2010-2013
Sub-Saharan
Africa

79.1

4

56.2

IMMUNISATION RATES FOR MEASLES
AND DPT*
Percentage Point Change 2010-2013

DPT

MEASLES

Asia-Paciﬁc

Sub-Saharan Africa

MENA

%

29 |

-1

0

1

2

3

4

Progress in immunisation against DPT
(diphtheria, pertussis, tetanus) has been
less significant than for measles. In the
MENA region and sub-Saharan Africa the
percentage of children immunised against
DPT decreased, while in Asia only 3.3%
more children were immunised against
DPT compared to 4.4% for measles.
Data from the Legatum Prosperity Index™
and beyond shows significant progress
has been made in certain aspects of health
and education since 2000. However, there
are still challenges to overcome and it is
encouraging that new goals were set out
for these areas of development by the UN
Secretary-General’s High-level Panel in the
post-2015 agenda. Targets to be considered
in this effort could include immunisation
against DPT as well as increases in
completion rates for secondary education,
which will enable a more holistic measure of
the progress of countries towards these goals.
As new targets are discussed, it is worth
considering one of the major criticisms of
the original MDG agenda. Namely, the
overemphasis on outcomes rather than on
development processes. This emphasis, it is
argued, has placed a priority on short-term
results rather than building the correct


millennium development goals

institutions for long-term sustainable development.11 What’s more, William Easterly has
argued that arbitrary choices made in the formulation of the MDGs are responsible for
the poor progress shown by African countries and the low likelihood of them achieving
the goals by 2015.12
The Prosperity Index reveals that the two areas that have shown least progress globally
between 2009 to 2013 are Governance and Safety & Security. Therefore, it will be
encouraging for some that the post-2015 development objectives will likely include
goals to “ensure good governance and effective institutions” as well as “ensure stable and
peaceful societies”.13
There is, however, a debate on whether or not specific targets on governance are politically
feasible14 and views differ about what role these institutions play in countries at different
stages of development. There are additional concerns that a focus on governance may
be perceived as interventionism from developed nations and a risk that this may come
with various conditions attached that will be imposed on less developed nations.15
Furthermore, there are significant challenges in measuring governance indicators.16
Prosperity Index data show that variables measuring freedom of political expression and
civil liberties, issues which form part of the post-2015 discussion (alongside the need
to reduce corruption), did not show improvement from 2010 to 2013. Other aspects
of governance that have not been included in the post-MDG agenda thus far, such
as government effectiveness, rule of law, and regulation quality, have also worsened or
remained fairly stagnant in the sub-Saharan Africa, Asia-Pacific, and MENA regions.
If these trends continue in the long term, we may observe that progress made so far in
the MDGs might be set back by government instability and inability to implement
adequate policies. It is important that any goal on governance encompasses targets that
are related to human rights as well as those related to establishing transparent, efficient,
and democratic institutions.
A less controversial post-2015 goal would be one that focuses on security. The detrimental
effects of war in particular are obvious. Even excluding direct casualties of war, side effects
such as starvation and disease, the resulting loss of production, and the effort needed to
reconstruct the economy thereafter are significant. A proposed goal in the post-2015
agenda includes targets on reducing violent deaths per 100,000 and controlling external
stressors that can lead to conflict, such as organised crime.
Incidences of crime are still high in sub-Saharan Africa, with over a quarter of those
surveyed reporting having had property stolen within the past year.17 Globally, war
casualties have increased overall between 2010 and 2013 and are particularly prevalent
still in sub-Saharan Africa, South Asia, and the MENA region.18 With such clear
security issues in the developing world, and the well-established negative effects of low
security on development, the post-2015 agenda should emphasise security concerns as
a priority.
The Prosperity Index shows that Governance and Safety & Security are key
drivers of national prosperity and development. These factors are vital for future
development and should form part of the post-2015 discussion on development
goals. The formulation of the targets and the degree to which they will require
international intervention will be important for their political acceptance. Although
much of the world has not yet been able to achieve the targets set out in the MDGs,
progress has been made. The focus now should be on goals and targets that aim
to establish stable, democratic governance and increase peace. Only then will the
foundations be laid for long-term development and prosperity.

1.

2.
3.

4.

5.

6.

7.

8.
9.

10.
11.

12.

13.

14.

15.

16.

17.
18.

United Nations General Assembly, “United Nations
Millennium Declaration”, Resolution 55/2, September
18, 2000, http://www.un.org/millennium/declaration/
ares552e.htm.
Developed countries comprises here Europe, Eastern
Europe and North America.
UN Secretary-General’s High-level Panel of Eminent
Persons on the Post-2015 Development Agenda, A New
Global Partnership: Eradicate Poverty and Transform
Economies Through Sustainable Development, (New
York: UN Secretary-General’s High-level Panel of
Eminent Persons on the Post-2015 Development
Agenda, May 2013), http://www.post2015hlp.org/wpcontent/uploads/2013/05/UN-Report.pdf.
UNDP, MDG Report 2013: Assessing progress in
Africa toward the Millennium Development Goals,
(Addis Ababa: UNDP, 2013), http://www.undp.org/
content/dam/undp/library/MDG/english/MDG%20
Regional%20Reports/Africa/MDG%20Report2013_
ENG_Fin_12June.pdf.
UN, The Millennium Development Goals Report
2013, (New York: UN, 2013), http://www.un.org/en/
development/desa/publications/mdgs-report-2013.html.
Prosperity Index data 2013.
By magnitude of decrease: Rwanda, Zambia,
Mozambique, Cambodia, Kenya, Tanzania, Uganda,
Ethiopia, Ghana and Mali (Prosperity Index data 2013).
Clive Gabay, “The MDG Legacy: Social, Cultural and
Spatial Engineering”, (Briefing Paper 36, International
NGO Training and Research Centre, February 2013),
http://www.intrac.org/data/files/resources/762/
Briefing-Paper-36-The-MDG-legacy-social-culturaland-spatialengineering.pdf.
William Easterly, “How the Millennium Development
Goals are Unfair to Africa”, World Development 37, no.
1 (2009): 26-35.
UN Secretary-General’s High-level Panel of Eminent
Persons on the Post-2015 Development Agenda, A New
Global Partnership: Eradicate Poverty and Transform
Economies Through Sustainable Development, (New
York: UN Secretary-General’s High-level Panel of
Eminent Persons on the Post-2015 Development
Agenda, May 2013), http://www.post2015hlp.org/wpcontent/uploads/2013/05/UN-Report.pdf.
Mark Tran, “Human Rights Could be Faultline in
Post-2015 Development Agenda”, The Guardian,
November 21, 2012, www.theguardian.com/globaldevelopment/2012/nov/21/human-rights-faultlinedevelopment-agenda.
Gina Bergh et al., “Building Governance into a
Post-2015 Framework: Exploring Transparency
and Accountability as an Entry Point”, (Research
Report, Overseas Development Institute, October
2012), http://www.odi.org.uk/publications/6892transparency-post-2015-governance.
Lisa Denney, Overseas Development Institute,
“Security: The Missing Bottom of the Millennium
Development Goals?”, (Research Report, Overseas
Development Institute, August 2012), http://www.
odi.org.uk/publications/6452-security-developmentmillennium-development-goals-mdgs-post-2015.

*This analyis is based on 110 countries between the
2009 and 2013 editions of the Prosperity Index.


| 30

INDIA AND BANGLADESH

DEVELOPMENT IN

India and Bangladesh
BANGLADESH IS LEADING THE WAY IN TERMS OF DEVELOPMENT IN SOUTH
ASIA, EXPOSING THE FAILINGS OF ITS GIGANTIC NEIGHBOUR.
n recent decades, India has been championed as an economic powerhouse and an economy on the
rise. Indeed, it is one of the original BRIC countries and in the six-year period of 2005–2011
grew at an annualised rate of 8.2%.1 Predicted to be the world’s most populous country in the
next 15 years—making it the home for nearly 20% of the earth’s total population2—the status
and trajectory of India’s development is hugely important for global prosperity. It is notable,
therefore, that India’s progress has slowed recently. A closer look at India and its South Asia
neighbours provides an interesting case study in progress and development, one which suggests that development
can occur in the absence of rapid economic growth.

I

India, Bangladesh and Pakistan are three countries united by geography, divided by history, and on very
different paths to prosperity. At first glance the comparison may seem unusual. India is a giant (encompassing
3.2 million square kilometres and with a total GDP of $1.8 trillion)3 relative to Bangladesh, which covers only
147,000 square kilometres and has a GDP of $116 billion.4 Pakistan sits between the two, covering 796,000
square kilometres with a total GDP of $231 billion.5 Throughout their shared histories, India’s economy has, on
more than one occasion, been enthusiastically promoted, while Bangladesh has been viewed in a less positive
light. However, the country once referred to as a “basket case” by Henry Kissinger is now a “development star”
according to Rob Vos, Director of UN Department of Economy and Social Affairs.6
This year, for the first time, Bangladesh has overtaken India on the Prosperity Index. The country is now ranked
103rd (and rising), while India is 106th (and falling) (see graph top right). Over the past five years, India has slid
down the rankings in seven of the eight sub-indices and in overall Prosperity, while Bangladesh’s performance
over this period is the complete opposite—rising in seven sub-indices and overall Prosperity.7 While comparing
Bangladesh and India, it is also worth reflecting on Pakistan. In many respects Pakistan is distinct from Bangladesh
and India. Pakistan (132nd) is ranked nearly 30 places lower than India on the Prosperity Index and faces distinct
security challenges that affect “all aspects of life…and impede development”.8 As a result, Pakistan’s rank in the
Prosperity Index has remained relatively unchanged over the last five years, showing neither a big increase nor a
decline. Given this, close comparisons with India and Bangladesh—two countries heading in opposite directions—
could be misleading, and as such this piece does not compare Pakistan with its two neighbours.
For Bangladesh, surpassing India is quite an accomplishment considering that the country’s GNI per capita—at
purchasing power parity—amounts to just half that of its larger neighbour.9 The Prosperity Index reveals
that despite this Bangladeshis not only live 3.5 years longer than their Indian counterparts, but fewer are
undernourished, a lower number die in infancy, and more have access to sanitation. Furthermore, the average
Bangladeshi worker has more secondary years of education (1.8 years) than his or her Indian counterpart (1.2 years).
Perhaps as a result, more respondents in Bangladesh reported being satisfied with the quality of education they
receive and more felt that children were learning in their society (see graph right). Such achievements explain why
Bangladesh’s success in improving the lives of its people has begun to generate substantial public interest.10
These impressive achievements suggest that development and progress are not solely reliant on rapid economic
growth. India’s experience suggests that GDP growth, in itself, is not enough. Between 1995 and 2012, India’s
economy grew each year, on average, by 1.2% more than Bangladesh’s (5.6% compared to 6.8%) and this
occurred despite India’s recent slowdown.11As a result, Bangladesh spends roughly four times less per person than

31 |



BANGLADESH AND INDIA: AVERAGE CHANGES IN RANK ACROSS SUB-INDICES 2009–2013*

IN 2013

BANGLADESH HAS

OVERTAKEN
INDIA

+3

-9

Social Capital

-13

+2

-27

Safety & Security

+5

-2

Health

+1

+3

Education

+18

-14

Governance

+2

-4

Entrepreneurship & Opportunity

+4

-13

Economy

+5

-15

Overall Prosperity

103

-45

RANKED

Personal Freedom

ON THE PROSPERITY
INDEX FOR THE
FIRST TIME

BANGLADESH

INDIA

RANKED

106

GOVERNANCE IN INDIA 2010-2013

75%
59%

61%
48%

Conﬁdence in the
national government

Conﬁdence in elections

UNITED PROGRESSIVE ALLIANCE SEATS IN LOWER HOUSE OF PARLIAMENT:
2010

262

2014

(predicted)

151
*This analyis is based on 110 countries between the
2009 and 2013 editions of the Prosperity Index.


| 32


INDIA VS. BANGLADESH

India on employment programmes and yet had an employment to
population ratio over 10% higher than India in 2007.12
While Bangladesh’s economic growth has not attracted the same
attention as India’s, its work on microfinance—the provision
of small loans to poor recipients without access to financial
services—certainly has. Microfinance originated in Bangladesh
in the 1970s and is now viewed as an important way of tackling
poverty. 13 One study of households in Bangladeshi villages over
time found that, on average, an increase in borrowing of 100
Bangladeshi Taka (Tk) increased future household consumption
by 15Tk, or 15%. Furthermore, the study found that borrowing
had a particularly positive effect when targeted at women and
that female borrowers were more likely to invest in schooling
and healthcare for their families.14 Microfinance in India has not
had the same effect on poverty as in Bangladesh.15 Among other
factors, this is partly the result of the shock to microfinance that
occurred in 2010 when the state of Andhra Pradesh effectively
outlawed private microfinance institutions. The result was that
overall loan portfolios for microfinance institutions across India
shrank by 33%, from $5.25 billion to $3.52 billion, between
March and December 2011.16 Since then, the Indian government
has taken steps to regulate microfinance institutions on a national
basis, providing the sector with a clearer regulatory framework.
This has helped the health of the sector, although its future success
is far from assured. 17 Although microfinance in Bangladesh is
no panacea, it would appear that in this area too India has been
outperformed by its neighbour.
Despite all these successes Bangladesh still has acute problems,
particularly in terms of governance: the country has been under
military rule three times in the past three decades.18
While Bangladesh’s performance in many respects is encouraging,
by contrast India’s development progress has slowed considerably
over the last five years, particularly in terms of the economy and
governance. The slowdown in India’s economic growth in 2012, to
3.2%, is surprising when compared with the 8.2% average annual
growth that the country recorded between 2005 and 2011.19
Even more worrying is the fact that this fall has been mirrored
by declines in other economic indicators. Since 2009, un-repaid
(or ‘non-performing’) loans in India’s banks have increased to a
reported 4.4% in mid-2013,20 the rupee has fallen, and foreign
direct investment has shrunk (see graphs right).
In addition, inflation remains worryingly high at 6.1%.21 The
deterioration in all these indicators mirrors the decline in the
country’s score on our Economy sub-index, which has caused
India to fall from 43rd to 62nd in ranking since 2009.
India’s democratic system of governance has always been
highlighted as fundamental to its future success. Despite many
failings, it is, at least, a democracy. It would appear, however, that
India’s economic problems have been compounded by governance
failures. Since 2009, India has fallen 14 places on the Governance

33 |

INDIA

BANGLADESH

1,000
47.2

Infant
mortality
(per 1000
births)

17.5

Undernourishment
(share of
population)

36.7

%
16.8

%

34

% of population
with waste
disposal
facilities

56

%
69

Perception that
children are
learning in
society (%)

79

%
69

Satisfaction
with educational
quality (%)

84

BANGLADESH

OUT–
PERFORMS
INDIA



INDIA ECONOMIC PERFORMANCE

sub-index to 54th. Over this period, faith in the country’s political class has
been shaken by high-profile corruption scandals, including the selling of
mobile phone spectrum at below market rates and the numerous instances of
bribery and incompetence associated with the 2010 Commonwealth Games.
Events like these—and the fact that 14% of the current Indian parliament
is accused of criminal activity, including murder, kidnapping, extortion and
rape—may have contributed to declining standards of governance as well as
the largest anti-government protests on record, led by India’s middle class.22
Such discontent is reflected in the Prosperity Index. India’s slide down the
Governance rankings has been, in part, the result of falling confidence in
the national government (down from 75% in 2009 to 59% by 2012) and
in confidence in elections (see bottom graph p32). This decline has been
accompanied by a fall in support for the governing coalition, which is currently
predicted to lose 111 (42%) of its seats in the election scheduled for 2014.23
India’s economic and political problems are far from unresolvable and the
country has prospered over the course of the last two decades. However, the
recent malaise seems to have lingered and observers are unconvinced that
many of these difficulties will be resolved in the near future. These problems
threaten to stall the country’s progress in the Prosperity Index.
Although Bangladesh continues to rise in the Index—in part a reflection of
successful development policies—we should not forget that the country has
significant problems of its own. However, at present, the grand South-Asian
leader might learn a trick or two from its more nimble regional compatriot.

1.
2.
3.
4.
5.
6.

7.

8.
9.
10.

11.
12.

13.

World Bank, GDP growth (annual %).
“India’s population ‘to be biggest’”, BBC, August 18,
2004, http://news.bbc.co.uk/1/hi/3575994.stm.
World Bank, GDP (current US $).
ibid.
ibid.
“Bangladesh as ‘Rising Star’ of the Economic
Growth: UN-DESA”, Financial Express, February, 16,
2012, http://www.thefinancialexpress-bd.com/
more.php?news_id=120341&date=2012-02-16.
Rankings are those for 110 countries. If the
rankings for 142 countries were used, India’s and
Bangladesh’s specific ranks would change, however
this would not change the relative performance of
the two countries.
World Bank, Pakistan: Achieving Results in a
Challenging Environment 2013.
World Bank, GNI per capita, PPP (current
international $).
“The Path Through the Fields”, The Economist,
November, 3, 2012, http://www.economist.
com/news/briefing/21565617-bangladesh-hasdysfunctional-politics-and-stunted-private-sectoryet-it-has-been-surprisingly.
World Bank, GDP growth (annual %).
Hasanuzzaman Zaman, “Assessing the Impact of
Employment Generation Programs in Challenging
Rural Poverty: A Comparative Study on Bangladesh
and India”, Journal of Poverty 15, no. 3 (2011):
259-276.
David Hulme and Thankom Arun, “What’s wrong
and right with microfinance—missing an angle on
responsible finance?”, (Working paper 155, BWPI,
July 2011), http://www.bwpi.manchester.ac.uk/
resources/Working-Papers/bwpi-wp-15511.pdf.

Economy score

0.6

0.4

Foreign direct investment, net inflows (USD billion)24

40

30

Un-repaid loans (% of total loans)
3.0

2.5

14. Shahidur R. Khandker, “Microfinance and Poverty:

Evidence Using Panel Data from Bangladesh”, World
Bank Econ Rev 19, no. 2 (2005): 263-286.

15. N. Srinivasan, Microfinance India: State of the Sector

16.

17.

18.

19.
20.
21.
22.

23.

24.

Report 2010, (New Delhi: ACCESS Development
Services, 2010), http://www.microfinancegateway.
org/gm/document-1.9.52504/State%20of%20
the%20Sector%20Report%202010.pdf.
Legatum Ventures, Indian Microfinance: Looking
Beyond the AP Act and its Devastating Impact on
the Poor, (Dubai: Legatum Ventures, March 2012),
http://www.intellecap.com/sites/default/files/
publications/20120313_full_report_ _indian_
microfinance_looking_beyond_the_ap_act_and_its_
devastating_impact_on_the_poor.pdf.
“Microfinance in India: Road to Redemption”, The
Economist, January 12, 2013, http://www.economist.
com/news/finance-and-economics/21569447industry-starting-revive-road-redemption.
International Crisis Group, Restoring Democracy in
Bangladesh, (Dhaka/Brussels: International Crisis
Group, April 2008), http://www.crisisgroup.org/~/
media/Files/asia/south-asia/bangladesh/151_
restoring_democracy_in_bangladesh.pdf.
Ibid note 1.
“Indian Banks Teeter on Asset-Quality Abyss”,
Reuters, August 13, 2013.
Trading Economics, Inflation rate.
Average from 5 polls: CV Voter Jan-March 2013,
April-May 2013, July 2013, Hansa Research, July
2013 and CSDA, July 2013.
Aalok Khandekar and Deepa S. Reddy, “An Indian
Summer: Corruption, Class and the Lokpal Protests”,
Journal of Consumer Culture 0, no. 0 (2013): 1-27.
Non-Prosperity Index data.


Rupee/USD exchange rate24
55

45

2009

•

•

•

2013

| 34

UK AND USA

THE ECONOMIC PERFORMANCE OF

the UK and the USA
ECONOMIC MALAISE HAS PLAGUED BOTH AMERICA AND GREAT BRITAIN IN THE LAST
FIVE YEARS, YET THE FUTURE LOOKS BRIGHTER FOR THE WORLD’S LARGEST ECONOMY.

S

ince Winston Churchill coined the phrase in 1946, it has often been stated that the US and
the UK share a ‘special relationship’. The 2013 Legatum Prosperity Index™ reveals that the
two countries now also share an unwanted economic connection; both have fallen down the
Economy sub-index rankings in the last five years, and this year the US has dropped out of
the top 20.

While the US’s fall is noteworthy, the UK left the top 20 (dropping from 18th to 21st) in 2011 and has
continued its descent. Furthermore, data from the Prosperity Index indicate that America’s immediate
future may be far brighter than that of the United Kingdom.
Due to declines in their Economy scores, both countries have been leapfrogged by a number of middleand high-income countries from Asia and the Middle East (see graph right). The contrasting fortunes
of these two groups of countries point to a change in the global economic landscape. The US saw a 24%
decline in its score, causing it to fall from 12th in 2009 to 24th place this year. Over the same period the
UK’s score decreased by 21% and it fell four places in the rankings to 28th.
In some respects the US and UK face similar economic problems. Unemployment has increased in both
countries since 2009 and remains above 7%.2 The Asian and Middle-Eastern countries that have overtaken
the US and UK have lower levels of unemployment: the unemployment rate is 4.3% in Taiwan and 4% in
the United Arab Emirates. Many countries export more high-tech products than the US and UK: 43% of
Malaysia’s manufactured exports are high-tech, compared with 21% for the UK and 18% for the US, while
for China and South Korea the figure is 26%. The US and UK are also lagging behind in terms of foreign
direct investment (FDI). While the US received foreign direct investment worth 1.3% of GDP in 2012,
this figure was 4.2% for Malaysia (in 2011)3, 3.1% for China and 2.1% for the United Arab Emirates (in
2011). The UK fared slightly better with FDI worth 2.3% of GDP.4
Both Britain and the United States also saved and invested5 less than their new competitors in 2012 (see
graph overleaf ). Although it is to be expected that developing countries would have higher saving and
investment rates, it is illuminating that South Korea and Taiwan—both high-income economies—are
also investing more. This could lend support to arguments that the UK and US economies suffer from
underinvestment.6
Saving and investment are important drivers of productivity. Similarly, capital per worker—the amount of
productive resources, such as machinery, at the disposal of workers—is another important driver. Capital
per worker in the US and UK is growing more slowly than in many other countries, although America’s
performance in this regard is more promising (see graph overleaf ).
Since 2010, capital per worker in the UK has only increased by 0.7%, while it has grown by 2.9% in
the United States. America’s performance is far more impressive than the UK’s, but both are dwarfed
by South Korea’s increase. This is more of a concern for the UK because South Korea’s capital per
worker was already above Britain’s in 2010, whereas it still remains below America’s. This may have had an

35 |


5 YEAR CHANGE IN ECONOMIC RANKING
UK AND USA

FIVE YEAR CHANGE IN ECONOMIC RANKING 2009-20131
2009

2013

7

China

8

Malaysia

UNITED STATES

12

12
13

Thailand


16 Taiwan

Malaysia

18

19

UNITED KINGDOM

South Korea

UNITED STATES

23
Taiwan

25

South Korea

26

Thailand

24

27

China

UNITED KINGDOM

28

33

34


| 36

UK AND USA

PERCENTAGE INCREASE IN
CAPITAL PER WORKER 2010-2013

SOUTH KOREA

UNITED STATES

+7.2%

+2.9%

+0.7%

UNITED KINGDOM
2010

Household indebtedness
2011
2012
(% of nominal disposable wealth)

Inflation

2013

UK AND US INFLATION 2010-201310

UK AND US HOUSEHOLD INDEBTEDNESS
2008-2011 (% of nominal disposable wealth)9
%

%
4.0

200

3.5
3.0

UK

150

2.0

USA
100

2008

•

•

1.5

2011

effect on productivity: between 2007 and 2011 multi-factor
productivity—which measures how much output can be
produced with the same amount of input—declined in the
UK by 2.4%, in contrast it increased by 0.9% in the United
States and by 3.3% in South Korea.7
Popular perceptions of financial institutions have declined
in both the US and UK in the last four years. In both countries
the proportion of respondents expressing confidence in financial
firms fell by approximately 8%. However, the total level of
confidence in financial institutions in 2013 is still higher in the
US (38%) than in the UK (28%). Americans are right to be
more confident. American banks increased lending to businesses
by 10.6% in 2012 and 7.9% in the first two quarters of 2013. In
contrast, lending by UK banks decreased by 1.5% in 2012 and
has continued to decrease by 1.4% in 2013.8
Businesses appear to have benefited from an improvement
in economic conditions in the US and it seems that this is
also the case for consumers. Consumption, the final purchase
of goods and services by businesses and individuals, is an
important part of both the British and US economies. To a
degree, this separates them from the majority of countries
that have overtaken them on the Economy sub-index, which
are more reliant on investment for economic growth.

37 |

UK

2.5

2010

•

•

USA
2013

Consumer spending is affected by indebtedness and inflation,
especially when the price of goods increases faster than the
wages people use to pay for them. Since the 2008 recession,
inflation has outstripped earnings growth in the UK11 and,
since late 2010, in the US12. Encouragingly, both the US and
the UK have seen a fall in both indebtedness and inflation,
but of concern for the UK is that these are still far higher
than across the Atlantic (see above). This may indicate that
British consumer spending will lag behind that of the US in
the near future.
There is some evidence that an improvement in consumer
purchasing power in the US is reflected in consumer
sentiment. The data in our index suggest that Americans have
been growing more optimistic since 2009. The number of
US respondents who think it is a good time to enter the job
market is up 3% from last year and has increased from 15% to
29%, since 2009. Furthermore, there was a similar increase in
expectations about the economy, with 5% more respondents
feeling that the economic situation was improving this year
(reaching 45%). By contrast, the number of Britons with a
favourable view of the job market decreased by 2% from last
year and remains at 10%. Similarly, those in the UK who feel
that the economy is improving fell by 14% (to 30%) over the


UK AND USA

SAVINGS AND INVESTMENTS: ASIA VS UK AND US
10

20

30

40

52.5

China

48.4
37.4

Malaysia

25.5

34.4

United Arab
Emirates

34.1

GROSS FIXED INVESTMENT
(% OF GDP)

31.4
31.5

South
Korea

29.5
30.1

Taiwan

United
States

GROSS DOMESTIC SAVINGS
(% OF GDP)

25.3

Thailand

United
Kingdom

50

22.6
12.1
14.6
11.1
14.9

same period. Recent economic data from the UK, including
rising house prices and increased GDP growth, have improved
public sentiment. However, similar data from the US suggests
a more robust recovery is occurring across the Atlantic,
perhaps giving Americans more reasons to be cheerful.
It is striking that both Britain and America have slid
down the economy rankings for many of the same reasons;
underinvestment, decreasing export competitiveness and
high unemployment. Their decline reflects the fact that
economic growth has been largely absent from Europe
and North America since 2008. Digging further into the
data, though, should warn against predictions of further
decline, especially for the US. America’s recent economic
performance has been far more encouraging and sets it apart
not only from the UK, but many other developed countries.
Belgium, Finland and Ireland also dropped out of the top 20
and are all currently below the US on the Economy subindex. Compared with some other developed countries the
US’s economy is beginning to look healthier than it has in
the past. Despite some recent improvements in economic
indicators, it is less certain that this is the case for the UK.

1.

2.
3.
4.
5.
6.

7.
8.

9.
10.
11.
12.


This analysis is based on a 110 countries between the 2009 and 2013 editions
of the Prosperity Index. This does not include the 32 new countries added in
the 2012 Prosperity Index.
United States Department of Labor, Bureau of Labor Statistics. Office for
National Statistics, Labour Market Statistics (August 2013).
2011 data are used when 2012 data are not available.
World Bank, FDI Net Inflows (% of GDP).
World Bank, Gross Fixed Investment (% of GDP).
LSE Growth Commission & Institute for Government, Investing for Prosperity
(London: Centre for Economic Performance, 2013), http://www.lse.ac.uk/
researchAndExpertise/units/growthCommission/documents/pdf/LSEGC-Report.pdf;
Paul Krugman, “Profits Without Production”, New York Times, June 20, 2013, http://
www.nytimes.com/2013/06/21/opinion/krugman-profits-without-production.html.
OECD, Multi-factor Productivity (2007-2011).
Bank of England, Trends in Lending (London: Bank of England, July 2013),
http://www.bankofengland.co.uk/publications/Documents/other/monetary/
trendsjuly13.pdf; Board of Governors of the Federal Reserve System, Selected
Assets and Liabilities of Commercial Banks in the United States (August 2013).
OECD, Household wealth and indebtedness as a percentage of nominal
disposable income. (June 2013).
World Bank, Inflation, consumer prices (annual %). The Office for National
Statistics. United States Department of Labour, Bureau of Labor Statistics.
Office for National Statistics, 2013.
Bureau of Labor Statistics, 2013.

| 38

WESTERN EUROPE

OTHER DEVELOPED COUNTRIES

EASTERN EUROPE

THE INNOVATIVE ENTREPRENEUR

SOCIAL CAPITAL VS ENTREPRENEURSHIP & OPPORTUNITY SUB-INDEX SCORES
1.24

SWEDEN
DENMARK

4

NETHERLANDS
AUSTRALIA

E&O sub-index score

UK
USA

SOUTH
KOREA

NORWAY

NEW ZELAND

GERMANY
CANADA

3

FRANCE

JAPAN

SLOVENIA
ESTONIA
SPAIN

2

RUSSIA

GREECE

1
UKRAINE
GEORGIA

-5

ARMENIA

-4

ALBANIA

-3

-2

-1

1

0

2

3

4

5

6

BOSNIA-HERZEGOVINA

-1

Social Capital sub-index score

INNOVATION OUTPUT VS SOCIAL CAPITAL SUB-INDEX SCORE
1.24

70

1.24
SWITZERLAND

70

SWITZERLAND

60

NETHERLANDS

60
UK

Innovation ouptut

Innovation ouptut

50
SOUTH
50
KOREA

SOUTH
KOREA
SLOVENIA
SLOVENIA40

40

ARMENIA

GERMANY

USA

FINLAND
DENMARK
FINLAND
USA
DENMARK
CANADA

NORWAY

NORWAY
NEW
CANADA
ZEALAND
NEW
ZEALAND
AUSTRALIA

ITALY
JAPAN
SPAIN
JAPAN
SPAIN

ITALY

AUSTRALIA

RUSSIA

GEORGIA

GREECE

GEORGIA

GERMANY

FRANCE

FRANCE

ARMENIA

NETHERLANDS

UK

30

RUSSIA

A well-deﬁned relationship with
innovation tends to occur
A well-deﬁned relationship withonce
the Social Capital sub-index
innovation tends to occur once
reaches a score of 1.24
the Social Capital sub-index or above.
reaches a score of 1.24 or above.

30

GREECE
ALBANIA
ALBANIA

20
20
10
10

-5
-5

-4
-4

-3
-3

-2

0

-1

-2

-1

0

1
1

2
2

3
3

4
4

5
5


WESTERN EUROPE
WESTERN EUROPE

39 |

EASTERN EUROPE
EASTERN EUROPE




The Innovative

ENTREPRENEUR
FOR INNOVATION TO FLOURISH, SOCIETIES
REQUIRE HIGH LEVELS OF SOCIAL CAPITAL.

I

n today’s hyper-competitive world, some of the most successful nations are the ones that
innovate. The genesis of innovation can be the result of large governmental investment in
research projects, occasionally it is the result of happenstance, but often the truly inspired
ideas come from innovative entrepreneurs—those who invent new ideas, re-invent old
ones, or perhaps create whole new industries.

But is promoting entrepreneurial activity—lowering start-up costs, promoting effective or limited
regulation—all that is necessary to spur innovation? Current research suggests not. Initially, establishing
inclusive institutions and reducing procedural rules will generate entrepreneurial business growth.1 But
this does not necessarily equate to an increase in highly innovative behaviour. The Prosperity Index finds
that a society must also have a high level of Social Capital (social cohesion, community engagement, and
interpersonal trust) in order to foster innovation.
The 2013 Prosperity Index finds that lowering procedural barriers and regulations can help entrepreneurs
create new businesses, especially in countries that are still developing economically or transitioning
from authoritarianism to a more open and democratic government. Slovenia, for example, which in the
last two decades has transitioned towards more democratic institutions and has enacted entrepreneurfriendly policies (there is no cost for registering and starting a new business in Slovenia), is today one of
the best performing countries on the Entrepreneurship & Opportunity sub-index.
According to the Prosperity Index, countries that score highest on the Entrepreneurship & Opportunity
sub-index are also the ones with the highest levels of Social Capital (see graph top left). The graph
divides highly developed European, Asian, and North American nations, and compares them with
the transitioning countries of Eastern Europe. By focusing on the already developed with the newly
transitioning, the graph is able to split those countries that have long-established inclusive institutions
and those (primarily in Eastern Europe) that are working to re-establish them.2 Countries in the bottom
left corner of the graph (those primarily transitioning from communism in Eastern Europe) have yet
to establish basic foundations for entrepreneurship (low start-up costs, effective government, and low
corruption) that help to form Social Capital and enable higher levels of innovation.
Not only do societies with high Social Capital tend to have more favourable environments for entrepreneurship,
they also tend to generate more innovative output.3 Innovation is a risky activity, especially for investors who
want to help fund entrepreneurs and researchers that have original ideas. Capital investors may be risk-averse,
may have internal capital constraints, or there may be differences in information between the investor and the
entrepreneur that lead to uncertainties about whether the investment will be profitable.4 While high Social
Capital does not necessarily eliminate these barriers, it can lower the costs associated with them.


| 40

the innovative entrepreneur

What defines a high Social Capital society is idiosyncratic to
each country. In some countries, Social Capital is generated
through high rates of volunteerism, for others it is membership
of community organisations, while for others it is a mixture of
other factors. Regardless of the avenue through which Social
Capital is achieved, these societies tend to have people who
care about trusting, helping, and cooperating with each other.

These historically strong institutions, which have developed
over the last couple of hundred years, have helped develop
the current high stock of Social Capital.7 As a result, these
institutions have created the necessary foundations for a strong
entrepreneurial environment as well as the Social Capital stock,
which encourages risk taking and innovative entrepreneurship.
For example, high Social Capital countries such as the
Netherlands, Denmark, New Zealand, and Norway not only
have well-established institutions and supportive attitudes
towards entrepreneurship (see p39), but have seen this coalesce
into encouraging high levels of innovative output.

Entrepreneurs in high Social Capital societies tend to care
about their reputation and will not ruin this by trying to
cheat others. As a result, investors know that entrepreneurs
who care about their reputations are not simply conning
them with a bad idea. Importantly, when
the relationship between investor and
entrepreneur is grounded on high trust,
there tends to be a reduction in transaction
A society
and monitoring costs, since there is less of
must have a
a need to collect information regarding the
authenticity and quality of entrepreneurs’
high level of
ideas.5 As a result, this creates societies
Social Capital
where investors are more willing to invest
in order to foster
innovation
in more radical and otherwise risky
entrepreneurial endeavours.
However, high Social Capital levels seem
to have a positive impact on innovation
and entrepreneurship only after a certain point. In the Social
Capital sub-index we observe a threshold when a country
reaches a Social Capital score of 1.24 or above. Only then
do we see a well-defined relationship with innovation (see
bottom graph p39). Those countries above the threshold all
rank in the top 21 on the Social Capital sub-index. These
countries are distinct in that they have already achieved a high
level of effective regulatory and democratic institutional quality
(see table opposite). They all tend to have low start-up costs,
the highest levels of the guarantee of rule of law (a necessary
component of economically successful societies),6 highly
effective and non-burdensome regulatory environments, and
almost all are considered decidedly democratic.

1.

Daron Acemoglu and James A. Robinson, Why Nations Fail (New York: Crown
Publishers, 2012).
2. A number of Eastern European countries had institutions prior to the Soviet bloc,
which are now being re-established.
3. Innovative output is defined utilising a series of metrics, which range from
number of registered patents, high-tech outputs, intangible or creative
outputs, royalty licences, FDI outflows, ICT exports. See http://www.
globalinnovationindex.org/content.aspx?page=data-analysis
4. Spiros Bougheas, “Internal vs. External Financing of R&D,” Small Business
Economics 22, no.1 (2004): 11-17; Grahame Boocock and Margaret Woods “The
evaluation Criteria Use by Venture Capitalist: Evidence from a UK Venture Fund,”
International Small Business Journal 16, no. 1 (1997): 36-57.

41 |

For those countries where Social Capital
is not having a large, positive impact
on innovative entrepreneurship, there
are country-specific characteristics that
have prevented its catalytic effects. In
transitioning countries in Eastern Europe,
some of the fundamental institutional
qualities are not in place—corruption levels
are high, which deteriorates social trust,
regulatory quality is highly burdensome and
unhelpful in promoting business growth,
and rule of law is yet to be fully guaranteed
(see table opposite). Regardless of whether
these countries had high Social Capital
levels or not, the fundamentals for entrepreneurial growth
do not yet exist. Even for countries such as France and
Spain, which have well-established institutional systems,
the relatively low stock of Social Capital appears to have
deterred the development of innovative entrepreneurs.
Ultimately, the fundamentals for entrepreneurship—start-up
costs, regulatory quality and the rule of law—must be prioritised
to encourage the growth of successful and productive businesses.
However, for innovative entrepreneurship to flourish, social
cohesion must exist. When people trust each other they will
be willing to support each other in the riskier, but ultimately
rewarding, activities that can increase prosperity.

5. Ibrahim S. Akcomak and Bas ter Weel, “Social Capital, Innovation and Growth:

Evidence from Europe”, European Economic Review 53, no. 5 (2008): 544-567.

6. See the following papers for the development of these arguments: Amir N. Licht

et al., “Culture Rules: the Foundations of the Rule of Law and Other Norms of
Governance” Journal of Comparative Economics 35, no 7 (2007): 659-688; Witold
J. Henisz, “The Institutional Environment for Economic
7. Growth”, Economics and Politics 12, no. 1 (2000): 1-31.
8. Guido Tabellini, “Culture and Institutions: Economic Development in the Regions
of Europe”, Journal of the European Economic Association 84, no. 4 (2010): 677-716.



Eastern Europe
Eastern Europe
Eastern Europe
Eastern Europe
Eastern Europe
Eastern Europe
Europe
Eastern Europe
Eastern Europe
Eastern Europe
Eastern Europe
Eastern Europe
Eastern Europe
Europe
Eastern Europe
Eastern Europe
Asia East
Eastern Europe
Eastern Europe
Eastern Europe
Eastern Europe
Europe
Europe
Eastern Europe
Eastern Europe
Eastern Europe
Asia Southeast
Eastern Europe
Asia East
Europe
Europe
Eastern Europe
Asia East
Europe
Europe
Europe
Europe
Europe
Europe
Europe
Europe
Europe
America North
Europe
Europe
America North
Europe
Asia Paciﬁc
Europe
Asia Paciﬁc
Europe

Georgia
Armenia
Albania
Montenegro
Croatia
Romania
Greece
Macedonia
Bosnia-Herzegovina
Serbia
Latvia
Moldova
Bulgaria
Cyprus
Azerbaijan
Hungary
South Korea
Russia
Lithuania
Slovakia
Czech Republic
Portugal
France
Estonia
Slovenia
Ukraine
Singapore
Poland
Taiwan
Italy
Spain
Belarus
Japan
Belgium
Malta
Luxembourg
Germany
Austria
Iceland
United Kingdon
Ireland
Sweden
United States
Switzerland
Finland
Canada
Netherlands
Australia
Denmark
New Zealand
Norway

138
129
126
121
116
114
107
106
104
102
93
91
87
86
79
71
66
62
54
47
46
43
42
40
37
36
34
31
30
29
27
24
23
21
20
17
15
14
13
12
11
10
9
8
7
6
5
4
3
2
1

3.8
2.5
22.1
1.6
7.3
2.8
20.5
1.9
14.9
7.7
2.3
5.7
1.1
12.4
2.3
8.9
14.6
2
1.1
1.8
8.2
2.3
0.9
1.6
0
1.5
0.6
14.4
2.4
16.5
4.7
2.3
7.5
5.2
8.9
1.9
4.9
4.9
3
0.7
0.3
0.5
1.4
2.1
1
0.4
5.1
0.7
0.2
0.4
1.7

-0.16
-0.41
-0.49
0.03
0.18
0.04
0.57
-0.25
-0.34
-0.33
0.8
-0.36
-0.09
1.06
-0.87
0.77
1.01
-0.78
0.77
0.65
1.01
1.01
1.5
1.18
1.07
-0.86
1.69
0.73
1.04
0.41
1.2
-1.08
1.27
1.45
1.35
1.81
1.61
1.81
1.69
1.67
1.76
1.95
1.6
1.76
1.96
1.76
1.82
1.78
1.92
1.91
1.89

0.66
0.26
0.28
-0.06
0.56
0.72
0.51
0.33
-0.04
0.01
0.95
-0.08
0.56
1.22
-0.4
1.05
0.95
-0.35
0.94
1.03
1.25
0.66
1.11
1.4
0.63
-0.56
1.83
0.96
1.17
0.75
1.09
-1.21
0.9
1.25
1.31
1.86
1.51
1.41
1.01
1.62
1.65
1.84
1.49
1.64
1.77
1.68
1.84
1.79
1.93
1.91
1.41

GOVERNMENT
TYPE***

REGULATORY
QUALITY**

RULE OF LAW*

START-UP COSTS
(% GNI PER
CAPITA)

SOCIAL CAPITAL
SUB-INDEX RANK

COUNTRY

REGION

WELL-GOVERNED COUNTRIES TEND TO HAVE HIGH SOCIAL CAPITAL

6
5
9
9
9
9
10
9
5
8
8
8
9
10
-7
10
8
4
10
10
8
10
9
9
10
6
-2
10
10
10
10
-7
10
8
10
10
10
10
10
10
10
10
10
10
10
10
10
10
10
10
10

Table—*Rule of Law: The extent to which individuals within a society respect property rights, the police and the judiciary system, as well as the quality of police and legal
safeguards (values closer to 2 indicate universal guarantee for the rule of law) ** Regulatory Quality: Captures perceptions of the ability of the government to formulate and
implement sound policies and regulations that permit and promote private sector development (higher, positive, levels indicate more effective regulation). *** Government Type:
The extent to which a society is autocratic or democratic. This measure depends on the competitiveness of executive recruitment, constraints on chief executives, regulation of
political participation, and competitiveness of political participation (a 10 indicates democratic while a -10 indicates highly autocratic).


| 42

sub-indices

43 |

ORIGINAL ILLUSTRATION BY Mágoz


SUB-INDICES

THE

Sub-Indices
THE LEGATUM PROSPERITY INDEX™ IS DIVIDED INTO EIGHT SUB-INDICES,
WHICH ARE FOUNDATIONS OF PROSPERITY.

ECONOMY

ENTREPRENEURSHIP
& OPPORTUNITY

GOVERNANCE

EDUCATION

HEALTH

SAFETY &
SECURITY

PERSONAL
FREEDOM

SOCIAL CAPITAL

The following pages examine some of the changes that have occurred within each sub-index in the last
five years.
Since 2009, all sub-indices have increased in score. This means that all aspects of prosperity have
increased over the last five years. Over this period, one of the biggest drops was seen in the Economy
sub-index following the start of the financial crisis in 2008. This, however, has rebounded since then and
is now showing modest but steady growth, on average.
All of the Sub-Index Analysis is available on our website —www.prosperity.com—where you can also
access all of our data including our rankings and key findings. You can also explore the data for all of our
142 countries to generate your own charts and graphs.


| 44

SUB-INDICES

ECONOMY
2009

The Economy sub-index measures countries’ performance in four key areas:
macroeconomic policies, economic satisfaction and expectations, foundations for
growth, and financial sector efficiency. Many countries have struggled in these
areas during a difficult period for the global economy. However, nearly all regions
now register a higher score on the Economy sub-index than they did in 2009, thus
recovering from the sharp drop in 2010, when the effects of the global financial crisis
were most keenly felt.
The only exceptions to this are Europe and the MENA region, neither of which has
fully regained the ground lost in 2010. Although the poor performance of both regions
is down to a range of factors, each has witnessed significant upheaval since 2009. In
Europe, the political and economic uncertainty about the future of the Eurozone and
the insolvency of some of its states, such as Greece, Portugal and Ireland, continues
to have an effect. In MENA, the repercussions of the Arab Spring are preventing
some countries from creating favourable conditions for economic growth.

2013
0.5

0.4
World

1.3
1.0

Asia Paciﬁc
0.8
0.4
The Americas

While most regions have improved economically since 2009, some have done so
quicker than others. Sub-Saharan Africa has grown the fastest, followed by the
Americas and the Asia-Pacific region. Although it may not be surprising that the
most economically underdeveloped region is growing the quickest—since it has more
clear opportunities for growth—it is encouraging to observe that sub-Saharan Africa,
despite having a long way to go, is catching up.
Sub-Saharan Africa’s success has been based on an improvement in economic
fundamentals rather than subjective measures. Looking at those countries for which we
have five years of data, sub-Saharan Africa has increased high-tech exports by 5%, gross
domestic savings by 2% and capital per worker by $2,066, since 2009. Furthermore, it
has reduced inflation by 5% and unemployment by 10%. The region’s growth in these
areas, except for the increase in capital per worker, was better than the global average.
In a marked contrast to sub-Saharan Africa, Europe has declined on a range of
economic measures. Unemployment is up by 3% to 10%, above the global average,
and non-performing loans increased by 5.3% to 9%, well above the global average of
5%. European citizens are not optimistic about the continent’s economic potential.
Only 19% feel that now is a good time to enter the job market, compared with 33%
of people globally, and only 42% have confidence in financial institutions, below the
global average of 59%.


-1.1

-1.9
Sub-Saharan Africa
0.3

0.2
MENA

1.2


0.9

Europe


Norway

1

Kenya

133

Switzerland

2

Malawi

134

Singapore

3

Afghanistan

135

Canada

4

Mauritania

136

Japan

5

Sierra Leone

137

Sweden

6

Guinea

138

China

7

Togo

139

Malaysia

8

Burundi

140

Germany

9

Liberia

141

Australia

10

Haiti

142

45 |


SUB-INDICES

ENTREPRENEURSHIP & OPPORTUNITY
2009

The Entrepreneurship & Opportunity sub-index measures a country’s entrepreneurial
environment, its promotion of innovative activity and the evenness of opportunity.
The global average for the E&O sub-index is the highest among the eight in the
2013 Legatum Prosperity Index. Since 2009, all countries, except for the Central
African Republic, have improved their performance on the E&O sub-index.
The E&O sub-index is the most correlated with overall prosperity. There is a
stronger relationship between E&O and overall Prosperity than between Social
Capital and Prosperity. This indicates that having a high E&O score is more
important for determining a country’s level of prosperity than performing well on
the Social Capital sub-index. The correlation coefficient for E&O and prosperity is
0.96 compared with 0.78 for Social Capital and prosperity.
Technology, specifically the number of secure internet servers in a country, has a
particularly important relationship with overall prosperity. Testing the Index’s 89
variables reveals that the number of secure internet servers per 1 million people
has the strongest relationship with prosperity, with a correlation coefficient of
0.92. By contrast, life expectancy (a variable in the Health sub-index) has a weaker
relationship with prosperity, with a correlation coefficient of 0.83. Across all
countries the number of secure internet servers per 1 million people increased by
198 between 2010 and 2013, an increase of 119%. This growth had an important
effect on entrepreneurship and prosperity across the globe.

2013
0.8

-0.2

World

0.9

-0.2

Asia Paciﬁc

0.6

-0.3

The Americas

-1.4

Sub-Saharan Africa
0.3

-2.6

2.3
MENA
-0.8
1.3

Europe





Sweden

1

Sierra Leone

133

Denmark

2

Djibouti

134

Finland

3

Ethiopia

135

Switzerland

4

Burundi

136

Luxembourg

5

Guinea

137

Norway

6

Haiti

138

Iceland

7

Niger

139

Netherlands

8

Chad

140

United Kingdom

9

Congo (DR)

141

Central Afr. Rep.

142

Hong Kong

10


| 46

SUB-INDICES

GOVERNANCE
2009

The Governance sub-index measures countries’ performance in three areas: effective
and accountable government, fair elections and political participation, and rule of law.
The Governance sub-index has shown a consistent upwards trend since 2010, with a
notable surge from 2011 to 2012.

This relative improvement in sub-Saharan Africa has been partly driven by improvements
in countries previously performing very poorly, such as Zimbabwe and Rwanda, which
were the second and third biggest improvers in the world on Governance in the last five
years. In Zimbabwe’s case, its improvement over five years has been driven by increases
in government effectiveness, rule of law, regulation quality, and reported confidence in
government and elections. Despite these improvements, political institutions are still underdeveloped, leading Zimbabwe to rank low (110th) on the Governance sub-index.

World
0.2

0.1
Asia Paciﬁc

-0.3
-0.5

The Americas

-1.3

-1.4
Sub-Saharan Africa

Furthermore, perceptions of corruption, which has been a key problem in sub-Saharan
African countries, have dropped throughout the region since 2009—unlike Europe,
where increasing levels of perceived corruption are a contributing factor to the region’s
decline in Governance.
The MENA region has witnessed the biggest decline in the Governance sub-index
since 2009, which is unsurprising given the recent political upheaval in the region.
Government effectiveness, rule of law, regulation quality, and citizens’ confidence in
the judicial system have dropped over the last five years, reflecting the discontent
seen within Arab Spring countries—although reported confidence in the military has
increased. Contributing to this decline in the region is Tunisia, which registers the
biggest drop, globally, in the Governance sub-index.

0.1

0.0

It is encouraging to see the Governance sub-index rising, especially in regions that have
historically faced many challenges—such as sub-Saharan Africa and the Asia Pacific region.
Looking at the performance of different regions we see that sub-Saharan Africa is the
region with the lowest Governance sub-index score, while Europe has the highest.
However, sub-Saharan Africa’s score has increased over the last five years, while
Europe’s has decreased, marginally.

2013

-0.6

-0.7
MENA

1.3

1.3

The Americas have had the biggest improvement in Governance out of all the regions,
with Trinidad and Tobago leading the region in the sub-index.
Europe





Switzerland

1

Angola

133

New Zealand

2

Sudan

134

Denmark

3

Côte d’Ivoire

135

Sweden

4

Guinea

136

Finland

5

Iraq

137

Luxembourg

6

Congo (DR)

138

Australia

7

Chad

139

Canada

8

Haiti

140

United Kingdom

9

Zimbabwe

141

Afghanistan

142

Netherlands

47 |

10


SUB-INDICES

EDUCATION
2009

The Education sub-index measures countries’ performance in three areas: access
to education, quality of education and human capital. The Education sub-index
has risen since 2009, with a slight drop in 2012. Europe and sub-Saharan Africa
recorded the highest and lowest performances, respectively, in the Education
sub-index over the last five years, with the other regions scoring very close to the
global average throughout the last five years.
All regions have improved their average Education score since 2009, with subSaharan Africa showing the biggest improvement, followed by the Asia-Pacific
region. Zimbabwe and Ethiopia improved the most (albeit from very low starting
points), while Bangladesh has also performed strongly since 2009.

2013
0.1

-0.1
World
0.5
0.1
Asia Paciﬁc
0.1

0.0
The Americas

Driving the global increase in the Education sub-index is a rise in net primary,
gross secondary, and gross tertiary enrolment rates, along with an increase
in years of secondary education per worker. All regions saw an improvement
in these variables. This is encouraging because an improvement in enrolment
rates combined with an increase in secondary education per worker helps create
an increasingly capable workforce, laying the foundations for further economic
development and prosperity.
Less positively, tertiary education per worker has declined in every region since
2009. A drop in tertiary education per worker indicates that rising gross tertiary
enrolment rates may have not yet translated into an increase in skilled workers.
Tunisia registers the biggest decline in the Education sub-index since 2009,
followed by Egypt. Denmark and Finland—which usually score very highly in the
Education sub-index—recorded the third and fourth biggest decreases in 2013
compared to 2009. Both suffered declines in the ratio of girls to boys in education,
and tertiary education per worker over the past five years.

-2.6

-3.2

Sub-Saharan Africa
-0.2

-0.2
MENA

1.7

1.6

Europe





New Zealand

1

Yemen

133

Australia

2

Guinea

134

Canada

3

Liberia

135

Norway

4

Sierra Leone

136

United States

5

Afghanistan

137

Finland

6

Côte d’Ivoire

138

South Korea

7

Niger

139

Spain

8

Mali

140

Slovenia

9

Chad

141

Taiwan

10

Central Afr. Rep.

142


| 48

SUB-INDICES

HEALTH
2009

The Health sub-index measures countries’ performance in three areas: basic health
outcomes (both objective and subjective), health infrastructure, and preventative
care. On average, the Health sub-index has risen every year since 2009. Only six
countries: Syria, Ukraine, Guatemala, Sudan, Philippines, and Israel, have a lower
Health score than they did five years ago, showing that nearly all countries in the
Index have improved.
Of all the regions, sub-Saharan Africa has recorded the greatest improvement
in Health (see graph p14). All countries in the region, except for Sudan, have
improved their Health score in the past five years. Sudan’s poor performance
is partly the result of the incidences of respiratory disease (increasing by 27
people to 140 per 100,000) and undernourishment (increasing by 18 people to
39 per 100,000). Other countries in the region have performed well though, and
six of the top 10 risers in the Health sub-index are sub-Saharan African countries.

2013
0.3

-0.2

-0.3

World
Asia Paciﬁc

0.5

0.2
The Americas

Of the top 10 biggest risers in the sub-index, all have reduced their rates of infant
mortality and increased health-adjusted life expectancy, while nine of them have
reduced undernourishment. On average, infant mortality has declined by 24
children per 1,000 live births, the prevalence of undernourishment has fallen by
6% and health-adjusted life expectancy has increased by 4.2 years. In addition to
this, the majority of the biggest risers have reduced incidences of tuberculosis and
respiratory diseases, and increased measles and diphtheria vaccinations.
Data from the Prosperity Index reflect the fact that the healthcare challenges facing
developed and developing countries differ. The top 10 risers in the Health subindex, all developing countries, improved due to progress in basic health outcomes
and increased provision of basic medical services, particularly vaccinations. By
contrast, the five most improving high-income countries (including the Netherlands
and Germany) did not see such large increases in vaccination rates or reductions
in undernourishment and infant mortality. In some cases these countries saw no
improvement because they already have near-perfect performance in these measures
(100% vaccination rates or negligible instances of undernourishment). The five
most-improving high income countries increased their healthcare expenditure (by an
average of $1,257) and all saw increases in life expectancy and health-adjusted life
expectancy (both by an average of two years).

0.4

-2.7

Sub-Saharan Africa
0.4

-3.8
0.0

MENA

1.9

1.4

Europe





Luxembourg

1

Côte d’Ivoire

133

United States

2

Zambia

134

Switzerland

3

Mozambique

135

Germany

4

Haiti

136

Norway

5

Liberia

137

Japan

6

Burundi

138

Netherlands

7

Congo (DR)

139

France

8

Central Afr. Rep.

140

Austria

9

Sierra Leone

141

Belgium

10

Chad

142

49 |


SUB-INDICES

SAFETY & SECURITY
2009

The Safety & Security sub-index measures countries’ performance in two respects:
national security and personal safety. The Safety & Security sub-index has increased
since its abrupt drop in 2010. Since this decrease, the sub-index score has risen in the
three subsequent years, with the biggest increase this year.
Hong Kong ranks first in Safety & Security and shows the biggest increase over
the last five years, making it the safest country in the world—less than 1% of Hong
Kong citizens reported being assaulted, when surveyed last year.

0.1

Sub-Saharan Africa registers the lowest score and also the biggest decline on the
sub-index since 2009—with the Central African Republic, Mozambique, Zambia,
and Senegal recording the largest decreases. The region is held back by the highest
increases in state-sponsored violence and in refugees and internally displaced
persons—all widespread problems in the sub-Saharan region.
The Asia-Pacific region registers the second biggest decline since 2009 with Pakistan,
India, and Nepal recording the largest decreases. Behind this decline in the region is
an increase in state-sponsored violence, refugees and internally displaced people, and
group grievances.

0.1
World

0.3

0.2
Asia Paciﬁc

-0.2

The region that has shown the biggest increase in Safety & Security is Europe,
which has had the highest sub-index score every year since 2009. A large drop
in demographic instability has driven the improvement. On the other hand, the
only countries that have declined in Safety & Security in Europe in the past five
years are all Western European nations: Norway, Greece, Finland, Italy, Portugal,
Denmark, and Ireland, which are less commonly linked to Safety & Security issues
than other European countries.
Regional variations in the sub-index depict the safety and security challenges that
many regions still face—especially the MENA and sub-Saharan regions. This is
important given that safety and security issues affect countries’ stability and potential
for development.

2013

-0.2
The Americas

-1.8

-1.9
Sub-Saharan Africa

-0.9

-1.0
MENA
1.8

1.6

Europe





Hong Kong

1

Zimbabwe

133

Iceland

2

Uganda

134

Sweden

3

Nigeria

135

Finland

4

Central Afr. Rep.

136

Ireland

5

Syria

137

Norway

6

Sudan

138

Canada

7

Afghanistan

139

Denmark

8

Pakistan

140

Taiwan

9

Chad

141

Congo (DR)

142

Luxembourg

10


| 50

SUB-INDICES

PERSONAL FREEDOM
2009

The Personal Freedom sub-index measures the performance and progress of nations
in guaranteeing individual freedom and encouraging social tolerance. Over the last
five years, levels of personal freedom around the world have fluctuated. For instance,
between 2011 and 2012, the average Personal Freedom sub-index score rose only to
drop between 2012 and 2013.
These fluctuations are the result of changes in citizens’ perceptions of their freedom
of choice and the guarantee of civil liberties. The perception of freedom of choice
hit a global high in 2012 when the average percentage of citizens who were satisfied
with their freedom of choice stood at 75.8%.
Countries that stand out as having the largest drops in perceived freedom of choice
include Syria (currently embroiled in civil war), which saw a drop from 69% in 2010
to 47% in 2013, the largest in the world. Tunisia (undergoing a precarious transition
towards democracy) has also seen a drop—by 10.8% to 56.7%—less dramatic, but
still significant.
Another important variable within the Personal Freedom sub-index measures the
change in the guarantee of civil liberties—freedom of expression, belief, and association,
rule of law, and personal autonomy within a nation.
For most of the countries in the Index, the guarantee of civil liberties has not changed
dramatically over the years. For instance, France, Germany, and the UK are given a
value of seven (indicating a full guarantee of civil liberties) which has not changed since
the Index was first compiled. However, for a select few countries, sudden or radical
changes in political or societal institutions have shifted their respective policy attitudes
towards civil liberties. Tunisia, for example, saw an increase in civil liberties as political
association has been promoted in the post-revolutionary era.
The last two years of Prosperity Index data show that personal freedom is, momentarily,
in decline. However, as recent global transitions gain momentum, we can remain
hopeful that they will shift the balance back towards freedom.

2013

0.0
World

0.2
0.0

-0.3

Asia Paciﬁc

1.1

0.6

The Americas

-0.7

-0.5
Sub-Saharan Africa

-2.1

-2.2
MENA

1.2

1.1

Europe





Canada

1

Syria

133

Norway

2

Greece

134

Australia

3

Pakistan

135

Sweden

4

Jordan

136

New Zealand

5

Angola

137

Iceland

6

Haiti

138

Luxembourg

7

Sudan

139

Ireland

8

Yemen

140

Denmark

9

Iraq

141

Uruguay

10

Egypt

142

51 |


SUB-INDICES

SOCIAL CAPITAL
2009

The Social Capital sub-index, which measures countries’ performance in two areas—
social cohesion and engagement, and community and family networks—has not
changed meaningfully in the last five years (up 0.07 in score). Although the Social
Capital sub-index looks to be stagnating globally, individual regions exhibit different
trends. This may reflect the fact that the determinants of social capital are different
for each region and country around the world.
Since 2009, certain regions have seen significant changes in their Social Capital subindex scores. For instance, Asia saw a substantial increase over the last five years (see
right). This significant change is the result of Asian citizens being, on average, 7%
more likely to help a stranger than five years ago. Sub-Saharan Africa saw the second
largest increase in Social Capital since 2009, largely as a result of an increase in the
number of people reporting that they could rely on others during hard times.
The most significant drops in the Social Capital sub-index came in Australasia, due
to falls in volunteerism (the two countries registered an average decline of 2.6% since
2010), donation levels (down, on average, by nearly 2%), and marriage rates (down,
on average, by 2.34%). Despite these decreases, Australia and New Zealand have
some of the highest levels of social capital in the world (ranked fourth and second
in the sub-index). Europe saw the second largest drop in Social Capital, primarily
because of declines in marriage rates (down nearly 2% to 52%, since 2010) and
charitable donation rates (down 2.3%, to 34% since 2010). This could be, in part,
the result of the ongoing economic crisis. The Middle East and North Africa region
also saw a decline as a result of a decrease in donation rates and the ability to rely on
others during hard times. The fall in reliance on others may partly reflect the increased
polarisation within some of the countries that are seeing sectarian/political schisms.
For instance, in Tunisia this year only 61% of people reported that they could rely on
others during hard times, down from 88% in 2010.
However, at the variable level some promising global trends are emerging—the
willingness to help a stranger has increased, on average, by 3% in every region over
the past five years. Beyond this, other variables have not changed dramatically, mainly
because the improvements and declines between countries have cancelled each other
out. This provides further evidence that social capital varies by country, and rises or
falls in social capital manifest themselves in different ways for different states.

2013
-0.1

-0.2
World

0.1
-0.3

Asia Paciﬁc

-0.2

-0.2
The Americas

-1.1
-1.3
Sub-Saharan Africa

-1.2

-1.3
MENA

1.0

0.9

Europe





Norway

1

India

133

New Zealand

2

Congo (Rep.)

134

Denmark

3

Cambodia

135

Australia

4

Côte d’Ivoire

136

Netherlands

5

Tunisia

137

Canada

6

Georgia

138

Finland

7

Burundi

139

Switzerland

8

Benin

140

United States

9

Central Afr. Rep.

141

Togo

142

Sweden

10


| 52

methodology

E&O
ECONOMY
Capital per Worker
Market Size
High-tech Exports
Gross Domestic
Savings
Unemployment
Non-performing
Loans
Inflation
FDI Size &
Volatility

Satisfaction with
Living Standard
Inflation
Adequate Food
and Shelter
Perceived Job
Availability
Gross Domestic
Savings
Expectations of
the Economy
Employed
Confidence
in Financial
Institutions
5-year Rate of
Growth

Entrepreneurship
& Opportunity

GOVERNANCE

Business Start-up
Costs
Secure Internet
Servers
R&D Expenditure
Internet Bandwidth
Uneven Economic
Development
Mobile Phones
Royalty Receipts
ICT Exports

Secure Internet
Servers
Mobile Phones
per Household
Working hard
gets you ahead
Environment for
Entrepreneurship
Business
Start-up Costs

Government
Stability
Government
Effectiveness
Rule of Law
Regulation
Separation of
Powers
Political Rights
Government Type
Political Constraints

Efforts to Address
Poverty
Confidence in the
Judicial System
Business and
Government
Corruption
Government
Effectiveness
Rule of Law
Regulation
Environmental
Preservation
Separation of
Powers
Government
Approval
Voiced Concern
Confidence in
Military
Confidence in
Honesty of
Elections

EDUCATION
Gross Secondary
Enrolment
Pupils-to-Teacher
Ratio
Net Primary
Enrolment
Girls-to-Boys
Enrolment
Gross Tertiary
Enrolment
Secondary
Education
per Worker
Tertiary Education
per Worker

Satisfaction with
Educational Quality
Perception that
Children are
Learning in Society
Gross Secondary
Enrolment
Gross Tertiary
Enrolment
Tertiary Education
per Worker
Net Primary
Enrolment
Girls-to-Boys
Enrolment
Secondary
Education
per Worker

1
2
3
4
5
6
INCOME

WELLBEING

PROSPERITY INDEX
OVERALL SCORE

Variables listed in darker
columns have an effect on
income. Those in the lighter
column affect wellbeing.
Some variables appear in
both columns because they
have an impact on both
income and wellbeing.

HEALTH
Infant Mortality
Rate
Life Expectancy
Immunisation
Against Infectious
Diseases
Incidence of TB
Undernourishment
Measles
Immunisation Rate
Health Expenditure
per Person

53 |

SOCIAL CAPITAL
Satisfaction
with Health
Level of Worrying
Satisfaction with
Environmental
Beauty
Hospital Beds
Health Expenditure
per Person
Water Quality
Infant Mortality
Rate
Health-adjusted
Life Expectancy
(HALE)
Sanitation
Death from
Respiratory
Diseases
Undernourishment
Well-rested
Health Problems

SAFETY & SECURITY

PERSONAL FREEDOM

Group Grievances
Refugees and
Internally
Displaced Persons
State Sponsored
Political Violence
Theft
Assault
Safe Walking
Alone at Night

Tolerance for
Immigrants
Tolerance for
Minorities
Civil Liberty & Free
Choice

Safe Walking
Alone at Night
Express Political
Opinion without
Fear
Group Grievances
State Sponsored
Political Violence
Demographic
Instability
Refugees and
Internally
Displaced Persons
Human Flight
Assault
Civil War

Satisfaction with
Freedom of Choice
Tolerance for
Immigrants
Civil Liberties
Tolerance for
Minorities

The diagram above shows the eight
sub-indices that form the basis of
national prosperity and the 89
individual variables, divided between
the sub-indices. The variables
determine a country’s score for each
sub-index and these determine its
overall score for the Prosperity Index.
Each variable makes a different
contribution to its sub-index score.
The variables are weighted by the
size of their effect on either wealth
or wellbeing. For instance, in the
Health sub-index, infant mortality

Reliability of Others
Volunteering
Helping Strangers
Donations

Reliability of Others
Trust Others
Marriage
Donations
Volunteering
Helping Strangers
Religious
Attendance

has a greater effect on the score
than health expenditure per person.
Although variables are weighted
differently, the Prosperity Index
applies equal weights to each
sub-index for all countries. We offer
you, the reader, the opportunity to
assign your own weightings to each
of the sub-indices. This can be done
on our website.
For more information on weightings
please refer to the Technical Appendix
published on www.prosperity.com.


METHODOLOGY

HOW DO WE MEASURE A COUNTRY’S
OVERALL PROSPERITY?
1 Selecting the variables. Starting with the current academic
literature on economic growth and wellbeing, we identified
a large number of variables (more than 200 in total) that
have a proven impact upon wealth and wellbeing. The
final variables were selected according to their global
coverage and by using regression analysis to determine
those that have a statistically significant relationship with
wealth and wellbeing. The remaining 89 variables are
divided into eight sub-indices depending on what aspect
of prosperity the data influence.

METHODOLOGY:

How We Build
the Index

T

2 Standardisation. The 89 variables use many different
units of measurement. For example, the proportion of
citizens that express confidence in financial institutions is
measured in percentage terms, while capital per worker
is measured in US Dollars. We transformed all variables
to a common scale using a statistical technique called
standardisation. A variable is standardised by subtracting
the mean and dividing by the standard deviation.

he 2013 Legatum Prosperity Index™ offers a
unique insight into how prosperity is forming
and changing across the world.

Traditionally, a nation’s prosperity has been
based solely on macroeconomic indicators
such as a country’s income, represented either by GDP or
by average income per person (GDP per capita). However,
most people would agree that prosperity is more than just the
accumulation of material wealth, it is also the joy of everyday
life and the prospect of being able to build an even better
life in the future. The Prosperity Index is distinctive in that it
is the only global measurement of prosperity based on both
income and wellbeing.

3 Variable weights. When the methodology was set in
2010, we also determined the weight of each variable,
using regression analysis. A variable’s weight (or ‘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.

HOW TO CALCULATE PI SCORES AND RANKINGS

Attempting to understand how we move ‘beyond’ GDP
is a particularly stimulating challenge, one that we strive
to meet with academic and analytical rigour. This short
methodological overview provides an understanding of how
we constructed the 2013 Legatum Prosperity Index™ by
combining established theoretical and empirical research on
the determinants of wealth and wellbeing.
The Index values the need for a country to promote high
levels of per capita income, but also advocates the need for
countries to improve the subjective wellbeing of its citizens.
Our econometric analysis has identified 89 variables, which
are spread across eight sub-indices. Through this process
we are able to identify and analyse the specific factors that
contribute to the prosperity of a country.
We endeavour to create an Index that is methodologically
sound. To that end, we also publish a full methodology
document to provide the reader with all the information
required to understand the Legatum Prosperity Index™ in a
way that is transparent, useful, and informative.


4 Income and Wellbeing scores. For each country, the
latest data available in 2013 were gathered for the 89
variables. The raw values are standardised and multiplied
by the weights. The 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.
5 Sub-index scores. The standardised income and
wellbeing scores are added together to create the countries’
sub-index scores. Countries are ranked according to their
scores in each of the eight sub-indices.
6 Prosperity Index score. Finally, the Prosperity Index
score is determined by assigning equal weights to all
eight sub-indices. The average of the eight sub-indices
yields a country’s overall Prosperity score. The overall
Prosperity Index rankings are based on this score.

| 54

ANOMALIES

ANOMALIES
SOME PROSPERITY INDEX RANKINGS MAY APPEAR TO THE READER AS PUZZLING.
IN SOME CASES THESE COULD BE THE RESULT OF ISSUES THAT LIE WITHIN THE DATA.
1.

Data Lag
The Prosperity Index uses the most recent available data points, but because it
relies on large global data sets the data are not always up to date. The 2013 Index
may not, therefore, reflect all recent events.

2. Autocratic Countries
Subjective data on perceptions can produce counterintuitive results for autocratic
regimes as citizens may be afraid of providing an honest opinion, particularly
concerning the government.

3. Actual Changes vs. Perceived Changes
Taking steps to tackle a problem can negatively affect citizens’ perceptions of
it—even if actual conditions are improving. Interventions can give an issue
higher visibility, leading to heightened public concern.

4. Weighting Sub-indices
It might be argued that some sub-indices have a larger effect on prosperity than
others, particularly in developing countries compared to developed countries.
For instance, addressing health issues could be more important for developing
countries than increasing social capital. For objectivity, and global comparability
however, the same weights have been applied to all sub-indices across all countries.

5. Treatment of Occupied/Disputed Territories
The status of disputed territories, such as the Palestinian territories or Kashmir,
is treated non-uniformly by several of our data sources. For instance, a number
of our data sources fail to include these territories within their data sets, while
others, such as the Failed States Index (from whom we receive data on human
flight), include them.
The Legatum Institute adopts an open and
transparent approach to the methodology
of our Prosperity Index. We do not apply
weightings to sub-indices nor do we adjust
the rankings or amend the data. With this
in mind, we strongly encourage analysis
and scrutiny of the data as this can help the
interpretation of rankings. To this purpose,
all datapoints used in the construction
of the Index are freely available on our
website www.prosperity.com.

55 |

6. Inputs vs. Outputs
In some instances the Prosperity Index utilises variables that measure inputs
rather than outputs as they are the best available proxy for the phenomena
under consideration. Anomalies arise when the efficiency with which inputs are
transformed into outputs varies across countries.

7.

Under-representation of the Population
For some countries, such as Saudi Arabia or the United Arab Emirates, subjective
data collected by Gallup might not be representative of the entire population.
Countries facing this problem are listed in our separate methodology document
available online.


PROSPERITY ILLUSTRATED

Prosperity ILLUSTRATED
YOU MAY HAVE NOTICED SEVERAL ‘ORIGINAL ILLUSTRATIONS’ CREDITED WITHIN THIS
BROCHURE. THESE WERE SELECTED FROM SHORTLISTED ENTRIES IN OUR FIRST PROSPERITY
ILLUSTRATED COMPETITION, A CHALLENGE FOR ILLUSTRATORS TO VISUALISE THEIR TAKE
ON WHAT IT MEANS TO BE GENUINELY PROSPEROUS.

1

2

st

nd

3

rd

1ST PLACE:
GIULIA FILIPPI (ITALY)

2ND PLACE:
ZITA KATONA (UK)

3RD PLACE:
MIGUEL MONTANER (SPAIN)

“The key to prosperity lies in
fundamental human values like
love, respect, imagination, and
brotherhood”.

“Prosperity is growth”.

“True prosperity is climbing higher
than you think you can, to improve
yourself, and to reach beyond”.

A truly global competition, entries were
received from every continent. The
three winning entries appear above.
To see the full gallery of shortlisted
art work, please visit our website at
http://www.li.com/prosperity-illustrated


| 56

ACKNOWLEDGEMENTS

ACKNOWLEDGEMENTS

The Legatum Institute Prosperity Index team:

The Legatum Institute would also like to thank its
International Advisory Group for their input and assistance
in the Prosperity Index:

Joana Alfaiate
Novella Bottini

Peter Skerry, Boston College; Dan Chirot, University
of Washington; Patrick Cheung, Hong Kong; and Toby
Mundy, CEO, Atlantic Books.

Stephen Clarke
Solène Dengler

The Legatum Institute also wishes to thank Gallup, Inc.
for permission to use the Gallup World Poll Service© and
Gallup World Poll Data in construction of the Prosperity
Index. Copyright Gallup, Inc. 2013. Reprinted with
permission of Gallup, Inc. All Rights Reserved.

Nathan Gamester
Edo Omic
Sean Walker

Special Advisors:
The Legatum Institute would like to thank the Special
Advisors to the Prosperity Index for their helpful advice,
critiques, and suggestions.
Tim Besley, London School of Economics
Daniel Drezner, Tufts University
Carol Graham, Brookings Institution
Edmund Malesky, University of California, San Diego
Ann Owen, Hamilton College
Designed by Kay Webb
Additional Data Visualisation by Jack Hagley

Unless otherwise stated, all data is from the 2013 Legatum Prosperity Index™. All original data sources can be found in the
Prosperity Index methodology report and online at www.prosperity.com.
In this report the term “country” is used to refer to the 142 societies that are included in the Prosperity Index. There are 140 states
and two territories—Hong Kong and Taiwan—in the Index.

We encourage you to share the contents of this document. In so doing, we request that all
data, findings, and analysis be attributed to the 2013 Legatum Prosperity Index™.
Twitter: #prosperity @LegatumInst

57 |


SECTION HEADER


| 58

BUILDING A MORE PROSPEROUS WORLD THROUGH LIBERTY AND RESPONSIBILITY

The Legatum Institute is an independent non-partisan public policy organisation whose research,
publications, and programmes advance ideas and policies in support of free and prosperous societies
around the world.

LEGATUM INSTITUTE
11 Charles Street
Mayfair
London W1J 5DW
United Kingdom
t: +44 (0) 20 7148 5400
Twitter: #prosperity @LegatumInst

www.li.com
www.prosperity.com

ISBN 978-1-907409-26-4

9 781907 409264

OCTOBER 2013

The legatum prosperity index™ 2013

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