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LEGATUM ™ PROSPERITY INDEX
AN INQUIRY INTO GLOBAL WEALTH AND WELLBEING
The 2010 Legatum Prosperity Index ™ Rankings
Strong ranking countries (Top 30) Average ranking countries (Middle 50) Low ranking countries (Bottom 30)
Entrepreneurship & Opportunity
Safety & Security
Copyright © 2010 Legatum Limited
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Norway Denmark Finland Australia New Zealand Sweden Canada Switzerland Netherlands United States Ireland Iceland United Kingdom Austria Germany Belgium Singapore Japan France Hong Kong Slovenia Taiwan Spain Czech Republic Italy Portugal South Korea Uruguay Poland United Arab Emirates Kuwait Chile Costa Rica Hungary Estonia Israel Slovakia Croatia Greece Panama Argentina Lithuania Malaysia Trinidad and Tobago Brazil Bulgaria Latvia Tunisia Saudi Arabia Kazakhstan Romania Thailand Mexico Belarus Jamaica Belize Botswana China Sri Lanka Mongolia Vietnam Morocco Russia Philippines Colombia South Africa Paraguay Dominican Republic Ukraine Indonesia Namibia Macedonia Peru Jordan Venezuela Uzbekistan Ecuador El Salvador Algeria Turkey Guatemala Bolivia Syria Lebanon Honduras Moldova Nicaragua India Egypt Ghana Nepal Iran Mali Senegal Cambodia Bangladesh Tanzania Rwanda Uganda Sudan Zambia Cameroon Mozambique Kenya Yemen Nigeria Ethiopia Central African Republic Pakistan Zimbabwe
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Welcome to the 2010 Legatum Prosperity Index™
We are pleased to introduce the 2010 Legatum Prosperity Index™, the world’s only global assessment of wealth and wellbeing. The Index provides a framework for assessing global prosperity that we hope will be of use to policymakers, scholars, businesses, and the globally curious for years to come. Now in its fourth year, this edition builds upon previous versions with expanded data and analysis. In our continuous effort to improve the Index using advances in research and data availability, this year’s Index features some significant changes from the 2009 Index. The rest of this report provides information on the details and implications of these changes. The Prosperity Index is unique. It starts with a holistic definition of prosperity that includes both material wealth and quality of life, and then employs a rigorous set of estimation methods to determine which factors matter most to a nation’s overall prosperity. Most people would intuitively agree that “prosperity” is not just about money but also about quality of life. The Prosperity Index is the first global index that provides an empirical basis for this belief, in addition to measurements of how well each country promotes prosperity. The Prosperity Index seeks to understand how economic fundamentals, health, freedom, governance, safety, education, entrepreneurial opportunity, and social capital influence a country’s economic growth and the happiness of its citizens. It finds that successful countries enjoy a “virtuous cycle” of economic liberty and growth, political freedom and good governance, and enterprising and happy citizens, which mutually reinforce each other on the path to prosperity.
Rather than replicating other measurements that rank countries by their actual levels of wealth, life satisfaction, or development, the Prosperity Index produces rankings based on the foundations of prosperity. These are the factors that help drive economic growth or produce happy citizens in a given country. This summary report provides the country rankings, a number of key findings, and background on how the Index was created. More information on the Prosperity Index, including data sources, profiles of each country, and interactive tools for further exploration, can be found at www.prosperity.com. The Prosperity Index is the signature annual report of the Legatum Institute and is central to our ongoing inquiry into the nature of prosperity and the pathways of successful countries. The Legatum Institute is a London-based global think tank that promotes political, economic, and individual liberty around the globe, with a special focus on developing and transitioning countries. We hope that you find the 2010 Prosperity Index engaging and thought-provoking. For the Legatum Institute, the quest to understand the foundations of prosperity and the principles of successful countries is an enduring investigation that we will seek to improve with every edition. We welcome any comments or feedback that may help improve our understanding. Please visit us at www.li.com for more information about our research, products, events, and initiatives.
“Freedom is indivisible... peace is indivisible... economic prosperity is indivisible.”
Where is My Country? 7 11 13 19 25 3 . What is Going On Up North? 5. The Financial Crisis and the Index 3. Why Another Index? 2.Table of Contents Table of Contents Prosperity Index Rankings (Please see inside front cover) The Scope of the 2010 Legatum Prosperity Index Key Findings How We Built the Index: Methodology Sub-Index Descriptions Regional Analyses Legatum Prosperity Index Academic Advisory Panel 5 8 20 26 36 44 Features 1. What Makes Countries Both Happier and Wealthier? 4.
in short.prosperity. the intelligence of our public debate or the integrity of our public officials… It measures everything.2010 Legatum Prosperity Index™ “.com . except that which makes life worthwhile. It does not include the beauty of our poetry or the strength of our marriages. and ambulances to clear our highways of carnage… It counts the destruction of the redwood and the loss of our natural wonder in chaotic sprawl… Yet the Gross National Product does not allow for the health of our children. Gross National Product counts air pollution and cigarette advertising..” Senator Robert F. Kennedy 4 www. the quality of their education or the joy of their play..
For instance. the Prosperity Index allows us to discover the non-economic effects of economic reality. while governments by themselves cannot create or mandate prosperity. journalists. and strong communities – it remains a fact of history that each nation needs to find its own path to success. Throughout this report. each of which represents a fundamental aspect of prosperity: 1. and is based on 89 different variables.” Each of the sub-indexes provides us with two important analyses: first. Moreover. And so on. scholars. they can help create an environment that is conducive to entrepreneurship. Ultimately. it is citizens and their leaders who must choose to take ownership of the foundations that will drive their nation’s long-term prosperity and their personal fulfilment. an economic assessment. There are 108 states and two territories – Hong Kong and Taiwan – in the Index. earned success. human rights. Each sub-index assesses the effect of a range of variables on per capita GDP and the subjective wellbeing of citizens. the Education sub-index looks at how educational factors contribute to economic growth and a nation’s overall level of happiness. accounting for over 90 percent of the world’s population. 2. Economy Entrepreneurship & Opportunity (E&O) Governance Education Health Safety & Security Personal Freedom Social Capital Our hope is that the Prosperity Index findings will be of use to policymakers. 8. accountable government. and will use the term “wellbeing” to signify “life satisfaction” or “happiness. we can begin to uncover intriguing insights and applications. business leaders. 5 . The Index consists of eight sub-indexes. 6. an assessment of a country’s subjective wellbeing. and human flourishing.The Scope of the 2010 Legatum Prosperity Index™ The Scope of the 2010 Legatum Prosperity Index™ The Prosperity Index™ assesses 110 countries 1. healthy citizens. 7. 5. 1 The term “country” is used loosely to refer to the 110 societies that are in the Prosperity Index. While there appear to be some common foundations shared by prosperous countries – such as economic liberty. or happiness. 4. The Prosperity Index consists of eight sub-indexes based upon years of research into the sources of economic growth and quality of life. The Entrepreneurship & Opportunity sub-index looks at how enterprising societies contribute to both the economy and citizens’ satisfaction with their lives. and the effects of economic indicators on life satisfaction. 3. each of which has a demonstrated effect on economic growth or on personal wellbeing. and interested citizens around the world. and second. By examining how the underlying data in different sub-indexes interact. we will use the term “income” and “wealth” interchangeably. In this way.
the media.prosperity. effective governance. human rights and liberties.com . and overall quality of life.2010 Legatum Prosperity Index™ The purpose of the Prosperity Index is to encourage policymakers. It includes factors such as social capital. Holistic prosperity extends beyond just material wealth. security. and the interested public to take a holistic view of prosperity and to understand how it is created. 6 www. health. opportunity. scholars.
or happiness. the World Economic Forum’s Global Competitiveness Index. the Prosperity Index is unique because of the broad and diverse range of factors it includes. The Prosperity Index utilises other helpful indexes such as the Wall Street Journal/Heritage Foundation’s Index of Economic Freedom. This means it is the only global index that measures both the factors that produce economic growth and those that produce happy citizens (or. the World Bank Governance Indicators. It measures both the actual performance of countries as well as citizens’ perceptions of their lives. Our hope is that. the Prosperity Index is the world’s only global assessment of wealth and wellbeing. the Prosperity Index will help provide new insights into the factors that produce successful countries and fulfilling lives. and Freedom House’s Freedom in the World Report. as it is generated and experienced. which together comprise “prosperity. Both of these dimensions are necessary to provide a holistic picture of prosperity. Second. 7 . It identifies as many factors as possible that make a significant contribution to GDP growth or subjective wellbeing (SWB). “the subjective wellbeing” of a country’s citizens). health. the Global Peace Index.” Many other indexes focus just on one or two issue areas. To start. more technically. The Prosperity Index looks at everything. such as economic policy. the Human Development Index. alongside the insights provided by these and other indexes. A third unique aspect of the Prosperity Index is its use of both objective and subjective data.The Scope of the 2010 Legatum Prosperity Index™ Feature One Why Another Index? How is the Prosperity Index different from the other Indexes out there? Do we really need another one? These are good questions. from the ease of starting a business to monetary stability to infant mortality to satisfaction with living standards to marriage and divorce rates – even attendance at religious services.
8 www.prosperity. It is our hope that readers will join us in exploring the Index as a way to confirm or challenge the consensus on emerging trends. This section contains some of the many interesting findings revealed by the Index’s unique analysis.com . test conventional wisdom.2010 Legatum Prosperity Index™ Key Findings The Prosperity Index is about more than country rankings. It is an exploration into the sources of prosperity and how they relate to each other. and find new policy applications for national growth and wellbeing.
Material wealth cannot be explained only by economic factors.Key Findings The findings fall into three main categories: I. and happiness cannot be explained only by subjective emotions. 9 . 9. II. 3. Two Europes are emerging. Improved governance is emerging as a key driver of prosperity in Sub-Saharan Africa. It’s hard to be prosperous as a large country. III. 10. 4. Entrepreneurship and opportunity correlate more closely to a nation’s overall prosperity than any other factor. 8. Global prosperity is changing in unexpected ways. It pays to be a democracy. Prosperity is a blend of wealth and happiness. Prosperity is found in entrepreneurial democracies that have strong social fabrics. Prosperity is about balance. 5. 6. 7. Choice and opportunity matter more to happiness than making a lot of money quickly. 2. 1. Economic growth is not enough for the BRICs. Changes in the “social fabric” of a country can lead to big changes in national prosperity. but not as one might think.
levels of entrepreneurship and access to new opportunities actually provide the best proxy to understanding how prosperous a society can be. encourages new businesses. The overall Prosperity Index rankings correlate more closely to the Entrepreneurship & Opportunity (E&O) sub-index. Entrepreneurship and opportunity correlate more closely to a nation’s overall prosperity than any other factor. it is imperative that economic policies in the current recession do not erode the incentives to be entrepreneurial and innovative. The fact that none fall in the extreme upper left or lower right corners shows how similar the E&O and overall Prosperity rankings are to one another. Correlation Between Entrepreneurship & Opportunity and Overall Prosperity Overall 2010 Prosperity Index Rankings 1 21 41 61 81 101 Notice how the points on the graph are arranged in almost a straight diagonal line. If we create an average ranking of only the income-related portions of all eight sub-indexes. are critical. some governments might have been tempted to impose protectionist tariffs or complex regulations which could discourage business activity. How well a country does in these areas goes a long way to explaining how well it will do promoting prosperity more generally. the E&O sub-index still correlates with the overall rankings. This implies that while other foundations such as health. education. The E&O sub-index is an important gauge of the way in which a society commercialises innovation.com . INSIGHT: In the wake of the global financial crisis.prosperity. social capital. 1. Prosperity is found in entrepreneurial democracies that have strong social fabrics. than to any other sub-index. or even the economy.2010 Legatum Prosperity Index™ Here are some of the most interesting findings from this year’s Index: I. 101 81 61 41 21 1 2010 Entrepreneurship & Opportunity Rankings 10 www. which constitute the cornerstone of long-term prosperity. Given the importance of entrepreneurship for overall prosperity. and fosters a sense among its citizens that hard work is rewarding.
6 percent in 2009 and while the global output is expected to grow by around 4. but rather the structural. if governments respond to the crisis by imposing complex regulations. As of yet. the world has been hit by a major financial crisis. How has the crisis affected the 2010 Prosperity Index? On the one hand.Key Findings Feature Two Financial Crisis and the Index Since mid-2008. those parts of the Index which make use of measures of the real economy do not seem to be affected. On the other hand. then entrepreneurship and business activities can be discouraged and the crisis can have a more permanent impact on global wealth and wellbeing. the recovery is still fragile in many regions of the world. a temporary recession – insofar as it does not alter the foundations of long-term prosperity – should not have a large impact on the countries’ prosperity rankings. partly because much of the data predates the crisis. or protectionist tariffs.5 percent in 2010. weakening the countries’ scores on the Economy sub-index. we should stress that the purpose of the index is not to track directly the fluctuations in income. in 2011. we can see a clear decline in measures of confidence in financial institutions in many countries of the world. the crisis could have a lasting effect on global prosperity if governments followed policies that tend to erode these foundations. For example. which quickly translated itself into a global recession. the world economy shrank by 0. It is thus conceivable that the financial crisis will affect the scores. institutional. The Entrepreneurship and Opportunity sub-index is related very tightly to material prosperity. prohibitive tax rates. According to the IMF. However. particularly in parts of Western Europe and in the United States. and maybe also the countries’ rankings. 11 . and cultural underpinnings of global prosperity. In principle.
and Nicaragua. Changes in the “social fabric” of a country can lead to big changes in national prosperity. satisfaction with freedom of choice and other social attitudes and practices clearly have direct implications on national prosperity. 23 are democracies. think. Algeria. Indonesia and Algeria have improved the most in their Prosperity Index rankings since 2009. and the other two (Singapore and Hong Kong) are semi-democratic societies rated at least “Partly Free” by the authoritative Freedom INSIGHT: While recent years have witnessed the rise of “authoritarian capitalism. Nicaragua experienced the largest decrease in rankings by 14 places.com . tolerance. the single best national model for sustaining wealth creation and happy citizens remains democratic capitalism. In both cases. asset valuation. mainly due to significant declines in social capital and governance. Top 25 Countries are Mostly Democracies Italy (25) Norway (1) Democracy Type of Government (Polity IV Project Rating) 10 8 6 4 2 0 Singapore (17) Hong Kong (20) Of the top 25 countries. they are nonetheless important to overall prosperity. Democratic nations turn in the strongest performances across the board in every sub-index. and worship.” exemplified by nations such as China and Russia. -2 -4 Autocracy -10 25 24 23 22 21 20 19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 2010 Prosperity Index Rankings in Ascending Order 3. such as education and human capital. and the free flow of capital depend on political systems that are grounded in rule of law. While survey results (on which many of our social capital and governance findings are based) are more volatile than other forms of data. safer. democracies produce happier. Indonesia has improved by 15 places to 70 and Algeria has improved by 12 places to 79. It pays to be a democracy. “democracies not only out-perform dictatorships when it comes to long-term economic growth. Economic principles such as market transparency. property and shareholder rights. this was a result of significant improvements in social capital. 12 www. The main factors behind the changes in social capital were survey responses – this shows that large changes in public attitudes in Indonesia. and healthier citizens.prosperity. both in economic growth and life satisfaction. As Harvard economist Dani Rodrik observed. Twenty three out of the top 25 societies in the Prosperity Index are electoral democracies. but also outdo them in several other important respects”.2010 Legatum Prosperity Index™ 2. Rapid swings in social attitudes may thus be a lead indicator of significant changes to come. led to significant changes in overall prosperity. assemble. INSIGHT: Shifts in mores. House survey. Conversely. Moreover. with accountable leaders and citizens who are free to speak.
Australia Canada. Denmark. suggesting that an environment onerous to entrepreneurship is bad for the economy as well as people’s perceptions about opportunities in their lives. Top Countries in Both Income and Wellbeing Measures Top 10 countries by wellbeing measures Top 10 countries by income measures The eight countries in the middle are in the top 10 in both income and wellbeing measures. volunteering. gross secondary and tertiary enrolment. and levels of secondary and tertiary education per worker are all related to economic prosperity and life satisfaction. citizens are not only happier. net primary school enrolment. Netherlands Austria Norway. girls to boys’ enrolment ratio. they promote happiness. the best-performing countries additionally benefit from democratic political systems. and then the top 10 countries by life satisfaction. More than thirty variables in the Index have a relationship with both. when a country provides strong national security. In fact. INSIGHT: The world’s most prosperous countries are very well-balanced countries. Switzerland United States Ireland Feature Three What Makes Countries Both Happier and Wealthier? In the Legatum Prosperity Index’s eight sub-indexes. the extent of regulation in the business sector and a government’s effectiveness are both related to wealth and wellbeing. The Prosperity Index rankings combine measures of economic growth and measures of life satisfaction. New Zealand. and vice versa. we have included variables that have a significant relationship with per capita GDP or life satisfaction as tracked by the Gallup World Poll. By promoting economic prosperity. honest and efficient governance. Tolerance for immigrants and ethnic minorities has a modest effect on both material prosperity and wellbeing. Also. The Prosperity Index also shows us that traditionally non-economic factors have more than non-economic effects. Poorer economic performances and lower levels of life satisfaction are related to higher inflation rates. in a mutually-reinforcing virtuous cycle. Strong human capital formation in a country has more than an economic impact: it also produces citizens who are more satisfied with their lives. Finland Sweden. If we break down the methodology and look at the top 10 countries by economic performance.Key Findings 4. helping strangers. we see a lot of overlap. Given the benefits of a smaller size (none of the countries that make the top 10 in both categories are among the world’s largest 25 countries). Prosperity is about balance. but they are also able to enjoy higher levels of income. and enterprising citizens. And important measures of social capital such as donations. and the reliability of others are not only linked to happy people – but they are also characteristic of strong economies. 13 . In education. Business start-up costs and ICT infrastructure also have strong relationships with both income and wellbeing.
Prosperity is a blend of wealth and happiness. 8. When it comes to the conditions of happiness. such as employment status. 106. 7. 3. and happiness cannot be explained only by subjective emotions. 105. Zambia Cameroon Mozambique Kenya Yemen Nigeria Ethiopia Central African Republic Pakistan Zimbabwe II. has a strong positive correlation with economic performance. 107. 10. an increased level of tolerance toward immigrants is associated with higher levels of GDP per capita. 4. 108. 102. Norway Denmark Finland Australia New Zealand Sweden Canada Switzerland Netherlands United States 10 Bottom 10 countries 101. For instance. a “soft issue”. domestic savings rates. but not as one might think. such as people’s perceptions of each other’s trustworthiness. economic factors. 109. 110. 9. 2. 104. Material wealth cannot be explained only by economic factors.2010 Legatum Prosperity Index™ Prosperity Around the World 7 Top 10 countries 1. Saying that one cares about the economy while not caring about factors such as distrust.prosperity. 5. INSIGHT: Policymakers hoping to understand the nature of prosperity and how it is created will be better-equipped by grasping a fundamental reality: social attitudes and networks have direct economic consequences. 6.com . 5. isolation. 14 www. Likewise. have a strong influence on how satisfied people are with their lives. and even internet connectivity. 103. and fear is not only unenlightened – it is ultimately self-defeating. High levels of trust in a society are necessary for trust-based capital markets to function.
creative endeavour. 15 . The process of creating leads to decreased wellbeing among citizens. happiness also follows suit. does not necessarily lead to more happiness – statistically. on the other hand. Choice and opportunity matter more to happiness than making a lot of money quickly.Key Findings 1 9 2 3 6 8 109 Strong ranking countries (Top 30) Average ranking countries (Middle 50) 105 100 106 108 102 104 107 Low ranking countries (Bottom 30) Insufficient data 101 110 103 4 5 6. Fast economic growth. the belief that hard work helps one get ahead is an important factor. GDP growth pursued through narrow. they are often wellbeing research has demonstrated that GDPs that grow happier than when they actually have the things too fast are often accompanied by social instability that associated with opportunity. may lead to a decrease in a nation’s prosperity. higher rates of GDP growth are correlated with lower levels of wellbeing. top-down policies that do not take citizen wellbeing into account. wealth through hard work. than the wealth the process actually creates. Thus. Being free to choose the course of your life and experiencing the satisfaction that comes from pursuing new opportunities matter more than quickly making a lot of money. when growth occurs as a rewarding output to people’s and taking risks is more important to happiness productive pursuits. while fast growing economies may improve societies. However. INSIGHT: When people believe opportunity is real and that it pays to pursue a dream. When it comes to happiness.
2010 Legatum Prosperity Index™ III. they rank lower than some Eastern European nations: Slovenia scores higher than all of the original PIGS. and Spain moved from 20th to 23rd. but their citizens are also not as happy with their lives – which is somewhat surprising given conventional wisdom about the quality of life in these common travel destinations. Greece moved from 36th to 39th.' Interestingly. and Education sub-indexes have decreased since 2009. 7. the Czech Republic is ranked higher than Italy and Portugal. Troubled European nations. with the largest drop in ranking occurring in the Economy sub-index. Ireland's performance in the Economy. These Southern European and Baltic EU states are diverging from the other EU nations as their levels of prosperity drop. Two Europes are emerging. from 25th to 26th. 1 -8 51 41 31 21 11 Bottom ranking Overall 2010 Prosperity Index Rankings Top ranking 16 www. none of the four original so-called PIGS (Portugal.com . and Slovakia and Croatia have overtaken Greece. Greece. such those in its southern regions. the Baltic countries are rapidly falling behind the rest of the EU. Entrepreneurship & Opportunity.prosperity. Global prosperity is changing in unexpected ways. Some analysts have recently replaced Italy with Ireland. when referring to the 'troubled 'PIGS. In fact. 2 Bulgaria (46) Slovakia (37) Italy (25) Germany (15) Sweden (6) Finland (2) Norway (1) Czech Republic (24) Austria (14) UK (13) 0 Poland (29) Portugal (26) France (19) Belgium (16) -2 Romania (51) Lithuania (42) Greece (39) Estonia (35) Spain (23) Ireland (11) -4 -6 Latvia (47) Most lower ranking EU states decreased in their ranks from 2009 to 2010. Three of the four original PIGS also rank lower than they did last year. European Countries on Different Trajectories 6 Hungary (34) Movement in Prosperity Index Rankings from 2009 to 2010 4 Slovenia (21) Netherlands (9) Most top ranking EU states either maintained or increased in their rankings from 2009 to 2010. Governance. In the overall rankings. Additionally. Italy. and Spain) score higher in prosperity than the remaining Western European nations. Portugal moved INSIGHT: The Index shows that the gap between successful and unsuccessful European countries is widening. Ireland has dropped two places in terms of its overall Prosperity Index ranking – from 9th in 2009 to 11th in 2010. have well-known economic problems.
It also ranks 21st on the Personal Freedom sub-index. On the Personal Freedom sub-index. INSIGHT: African growth is one of the most underreported news stories of this decade. The index shows that the most successful African countries owe their success to radical improvements in the quality of their governance. While Sub-Saharan Africa still dominates the lower tier of the rankings. Improved governance is emerging as a key driver of prosperity in Sub-Saharan Africa. driven by some surprising successes in the sub-indexes. for instance. such as Senegal. better than Greece or Latvia. particularly in establishing confidence in the military and in the judicial system. Africa: Good Governance Increases Prosperity Although most African countries fall well below the global average. scores 25th on the Governance sub-index. one can find some encouraging differences among African countries. a number of other African countries. Botswana. -2 0 Overall 2010 Prosperity Index Scores 0 = Global Average Performance -2 Sudan Tanzania Botswana Cameroon Zimbabwe Central African Republic Namibia Nigeria Kenya Senegal Ghana Mali Mozambique Zambia South Africa Ethiopia Rwanda Uganda Economy Entrepreneurship Governance & Opportunity Education Health Safety & Security Personal Freedom Social Capital -4 -6 -8 -10 Sub-Indexes 17 . In terms of overall prosperity. Botswana. progress among the top performers indicates that Africa has significant bright spots. and 35th on the Personal Freedom sub-index. Mali. or Cameroon score better than some Eastern European countries. Namibia is 44th on the same Governance sub-index. South Africa and Namibia are leading in the region.Key Findings 8. ahead of Slovenia. Portugal or Italy.
a majority of them are marked by imbalanced.prosperity. which dominate the upper tier of the world’s largest countries. Health. Although China has recently overtaken Japan as the world’s second largest economy. governments. In order to go from emerging economies to prosperous nations. Governance. Russia. 18 www. 81 United States Japan Brazil China Russia Indonesia India Bangladesh Nigeria Pakistan 101 Economy Entrepreneurship Governance & Opportunity Education Health Safety & Security Personal Freedom Social Capital Sub-Indexes 10. It’s hard to be prosperous as a large country. also ranks among the top 10 countries in the Prosperity Index. have been regarded as leaders among emerging economies. While the economy may be improving. The 10 countries in the world with more than 125 million people apiece deal with challenges to sustainable prosperity that are less significant in smaller countries. according to the Gallup World Poll. INSIGHT: Global conventional wisdom has come to accept the hard-charging nature of the BRICs’ economies. the proportion of Chinese who feel free to determine the course of their lives decreased from 85% in 2008 to 77% in 2009. In spite of the headlines about the rise of the BRICs. the perceived tolerance of Indians towards immigrants has fallen substantially.2010 Legatum Prosperity Index™ 9. Most of the other large countries do not break into the top 20 in any sub-index. Following the 2008 Mumbai attacks. Only one nation in this group. unstable. In general more of world’s most populous countries are either governed undemocratically or are struggling to maintain democratic societies under the rule of law. USA: Top Ranking Large Country 1 Overall Prosperity Index Ranking 21 41 61 The US. with Russia still suffering from its notorious (and worsening) troubles with Personal Freedom. The BRICs (Brazil. which ranks at 10 in the Prosperity Index. Brazil and Russia have changed relatively little over the past year. and Safety & Security. its improvements have been offset by decreased rankings in Education. contributing to a drop in the levels of Personal Freedom.com . Economic growth is not enough for the BRICs. the BRICs will have to foster improvements in areas beyond economic factors. and Social Capital sub-indexes. the BRICs’ current situation is precarious. INSIGHT: The USA and Japan. or even corrupt. India’s ranking has decreased the most by 10 places since 2009. Entrepreneurship & Opportunity. when we look at prosperity holistically. Large populations bring unique challenges as well as opportunities. it still trails 40 places behind Japan at 58 in terms of its overall prosperity. but looking at economic growth alone can gloss over their deep deficiencies in other areas essential to long-term. Personal Freedom. sustainable prosperity. India and China). places in the top 15 in seven subindexes. However. However. which have more than 40% of the world’s population. the United States. China has improved the most by climbing up the ranks in the Economy. primarily due to its drop in the Personal Freedom sub-index. Perhaps unsurprisingly. stand out primarily because each has at least over a half century of experience with the institutions of democratic capitalism.
As an example. and others. 19 . The four Nordics rank in the top six in the Entrepreneurship and Opportunity sub-index because an overwhelming majority of citizens in each country have confidence that they can climb life’s ladder regardless of socio-economic status. then. Sweden.Key Findings Feature Four What is Going On Up North? The very top of the 2010 Prosperity Index is dominated by the four major Nordic countries: Norway. This is a system that would – without a high degree of trust and public spiritedness – have generated moral hazard issues and unemployment. Swedish economic growth accelerated as it reduced its government spending throughout the 1990s. Denmark. it would be ill-informed. the Nordic countries now rank among the economically freer regions of Europe. One important consideration for economic growth. However tempting such a conclusion might be. Despite large governments and fairly high tax rates. Recent research has shown that Nordic countries were among the most aggressive “neoliberal” reformers of the 1980s and 1990s. if one were to average Denmark’s scores in that Index’s eight categories related to economic performance. Additionally. Why is this? Further research shows that a high level of public spiritedness allows welfare states to foster economic and social wellbeing. Danish labour markets combine a very low level of job protection and rigidity with generous unemployment benefits. The fact that they have both strong economies and high levels of taxation and redistribution has led some to argue that large welfare states are important to prosperity. give themselves credit. is that the size of the public sector and levels of taxation tend to matter less than the incentives that individuals face when deciding whether or not to engage in productive activities. One might say that the Nordic countries are more economically free than for which they. Denmark would rank as the world’s freest economy in the Heritage Foundation’s Index of Economic Freedom. and Finland.
Each sub-index is based on analyses of the factors that lead to higher levels of both income and wellbeing. For the 2010 Index. Using this research. and in many cases also relate to each other. The Prosperity Index identifies 89 variables that are linked to higher levels of income and wellbeing. a country that performs well in educating its workers probably also has an innovative economy.prosperity. each of which is considered to be a fundamental pillar of prosperity. the other seven sub-indexes only measured how each sub-index related to either income or wellbeing. It explains how we determined the importance of each variable and calculated a country’s overall prosperity score. decades of established theoretical and empirical research on economic growth and wellbeing have identified some common themes. two of which (essentially) measured income and wellbeing dimensions of governance. we were able to include additional variables that enabled each sub-index to include both income and wellbeing dimensions. Due to limitations in data availability. 20 www.com . They are both the causes and consequences of high levels of income and wellbeing. For instance. and categorises them into eight sub-indexes. This section provides an overview of the sub-indexes.prosperity. due to increased data availability. Of course. the Prosperity Index uses econometric analyses to identify eight sub-indexes that are critical for prosperity. The 2009 Index featured nine sub-indexes. please refer to the full report. For additional information on the construction of the Index. it is important to keep in mind that the relationships between these variables and foundations are complex. While each country’s path to prosperity is varied.2010 Legatum Prosperity Index™ How We Built the Index: Methodology The Legatum Prosperity Index™ is an assessment of wealth and wellbeing in 110 countries around the world that includes more than 90 percent of the world’s population.com. which can be found at www.
How We Built the Index: Methodology What are the foundations of prosperity? 2010 Prosperity Index Eight Sub-indexes. and worship also promote higher levels of income and wellbeing? Social Capital – What kinds of social networks. each sub-index is designed to answer some simple questions Economy – Which factors in a nation’s economy lead to higher levels of per capita income? conditions promote confidence and lead to higher levels of wellbeing? Which economic Entrepreneurship & Opportunity – What are the characteristics of a society that encourage citizens to be entrepreneurial. and seek opportunities that lead to higher levels of income and wellbeing? Governance – What are the government institutions and types of government functions that lead to growth in per capita income and higher levels of wellbeing? Education – Which aspects of an educational system contribute to growth in per capita income through their contribution to human capital. relationships. and which elements in a learning environment lead to higher levels of wellbeing? Health – What are the health-related factors in a society that are necessary for higher levels of per capita income and wellbeing? Safety & Security – How does the personal safety of citizens and the national security of a nation create conditions for growth in per capita income and higher levels of wellbeing? Personal Freedom – In what way does the guaranteed right to speak. think. risk-taking. Each sub-index is created through statistical analysis of what increases both the per capita income and life satisfaction of a country’s citizens. each of which has been identified as a foundation of prosperity. equally weighted The Prosperity Index is divided into eight different sub-indexes. assemble. and institutions lead to higher levels of wellbeing and economic productivity? 21 . Economy Entrepreneurship & Opportunity Governance Education Health Safety & Security Personal Freedom Social Capital At a very basic level.
yet fairly complex. since each foundation of prosperity has both income and wellbeing dimensions. we used General Methods of Moments (GMM) regressions. We have determined the importance of each of these variables to higher levels of income or wellbeing by using well-established. we used a method called ordered logistic regression on cross-sectional data. This survey item measures individual life satisfaction or subjective wellbeing. changes from the 2009 Index. 22 www. For instance. Further discussions on these estimation methods.com . which is available at www. In order to determine the factors leading to greater economic prosperity. Each sub-index includes both types of regressions. This weight represents the variable’s relative importance as a factor of prosperity. some things matter more to prosperity than others.prosperity.2010 Legatum Prosperity Index™ How did we find the most important factors for prosperity? Each sub-index is built upon characteristics that our inquiry has found essential to promoting prosperity. statistically speaking. In order to determine what leads to higher levels of wellbeing. We represent these weights in the bar graphs in each of the sub-index descriptions that follow. but are drawn from established theoretical and empirical research on the significant drivers of economic growth and wellbeing. In this analysis. For those familiar with econometric terminology. These characteristics are measured by 89 variables that are a combination of objective data and subjective responses to surveys. but also citizens’ sense of wellbeing. we used GDP per capita as the dependent variable in these GMM panel regressions. are presented in the full Prosperity Index Report. a country’s economy or quality of governance not only impacts income levels. It is important to note that these fundamental characteristics have not been arbitrarily selected. In other words. we used survey data from the ‘Life Today’ question in the Gallup World Poll as the dependent variable.com. regressions (a way of statistically determining which variables matter most). The regressions estimate a “weight” for each variable – or a “coefficient” for the more technically inclined.prosperity. and the rationale for using our specific measures of income and wellbeing.
and see how the rankings change.. Add up these weighted variable values to produce a country’s wellbeing and income scores in each sub-index. B8 * x8 + B9 * x9 + B10 * x10 + . = Income score = Wellbeing score 3. For each country... represented by the “B” symbol..com. The countries are ranked based on these scores to produce the overall Prosperity Index rankings. Identify variables that go into each sub-index. The diagram below illustrates how we go from identifying a factor of prosperity to determining a country’s performance in a sub-index. for more details on how the scores are calculated for each sub-index. However..How We Built the Index: Methodology How do we measure a country’s overall prosperity? A country is given a score in each sub-index. B1 * x1 + B2 * x2 + B3 * x3 + .. please go to the full report. certain variables will matter to both. which is available on our website. X2 X1 X5 X3 X6 X4 X7 X8 X9 X10 X13 X11 X14 X12 X15 GDP/Capita = B1 X1 + B2 X2 + B3 X3 + . on our website at www. 23 . Average the income and wellbeing scores to get the overall sub-index score. based on a combination of its performance in the different variables and the varying levels of importance these variables.. we offer you the opportunity to give your own weightings to each of the sub-indexes. multiply the raw values and coefficients from variables that are statistically relevant. the Prosperity Index gives equal weighting to the sub-indexes to allow us to compare countries across sub-indexes. Some variables will be relevant to income and others to wellbeing. Those that are statistically relevant will have a significant coefficient. For each country 2. ‘Life Today’ = B8 X8 + B9 X9 + B10 X10 + . While different foundations are likely to matter more for countries in different regions or income levels. How the Sub-Index Scores are Calculated Sub-Index Income Wellbeing 1. Sub-Index Score 4. In a few instances.prosperity. Additionally. Retain variables that are statistically relevant to income or wellbeing.. These sub-index scores are then averaged to produce a country’s overall prosperity score.
That being said. some of the differences between countries’ rankings in this year’s and last year’s publication will be the consequence of improvements in the methodology of the index. For a complete description of the changes we have made to the Index methodology. As a result. taking account of the latest findings in this growing area of research. This is because in 2010. countries like India that performed well on membership variables suffered a large decrease in their social capital ranking. more refined methods for determining the significance of each variable. The high correlation between the two rankings is a result of the fact that the 2010 Prosperity Index measures the same fundamental aspects of prosperity. The other changes we made in this year’s Index concern applying more rigorous standards for data coverage. Because of this year’s changes. This meant that we had to exclude variables on rates of group membership. These two sets of rankings have a correlation of 94%. we have been able to include new data that measures these two aspects of prosperity. it still measures countries on elements that are central to social capital. which were important measures of strengths of social networks.com. while several countries in the Middle East increased in their rankings. the E&O sub-index. Meanwhile. we are continuing to search for variables that will capture the important aspects of social capital that are currently missing from the sub-index.2010 Legatum Prosperity Index™ Why did we change our estimation methods in 2010? The 2010 Prosperity Index presents a refined and improved version of its predecessors in 2009 and 2008. has expanded in scope. Conversely. the rankings change very little. Therefore.prosperity. some countries in the Middle East and Latin America. A major methodological change in the 2010 Index has been to create a stronger balance between income and wellbeing by measuring the effect of each sub-index on both income per capita and life satisfaction. we have recalculated the 2009 rankings according to the 2010 methodology to produce accurate comparisons. and specific ones like India and China. we decided to only include variables for which there was data available for more than 80% of Index countries. and exploring new venues of analysis that have become possible as data availability expands. As a result of these changes. In light of the extent of the changes. which used to be the Entrepreneurship & Innovation sub-index. it is perhaps surprising that with the exception of a few countries. As a result. and our inclusion of both income and wellbeing analyses in each sub-index. This is mainly due to significant changes in the Social Capital and Entrepreneurship & Opportunity (E&O) sub-indexes. The chart on page 43 provides an ‘apples to apples’ comparison between 2009 and 2010. Comparison Between the Original 2009 Prosperity Index Rankings and the 2010 Prosperity Index Ranking 1 Original 2009 Prosperity Index Rankings 21 There is a high level of correlation between the 2010 Prosperity Index rankings and the original 2009 rankings 41 61 81 101 101 81 61 41 21 1 2010 Prosperity Index Rankings 24 www. The graph to the right shows the correlation between the original 2009 and the new 2010 Index rankings. each sub-index now includes two regressions. please refer to the full Prosperity Index Report at www. have undergone large shifts in rankings from 2009 to 2010. comparing the 2010 Index to the original 2009 version does not produce an ‘apples to apples’ comparison. It shows the shifts that result from absolute changes in country performance. This subindex now includes measures of social mobility and access to opportunity. The Governance and Democratic Institutions sub-indexes from 2009 have now been merged into one sub-index.com .prosperity. While the 2010 Social Capital sub-index has a more limited scope. In the 2010 sub-index.
such as those providing economic. Ethiopia. Rwanda. the Prosperity Index includes a lot of data: 89 variables drawn from 12 different data sources. we cannot include all countries. Other countries may be covered by the Gallup World Poll but are not in other data sets essential to the Index. as we rely upon survey data from the Gallup World Poll. Yet. which covers 155 countries. For example. Samoa.How We Built the Index: Methodology Feature Five Where is My Country? We are often asked the familiar question: “why isn’t my country listed in the Prosperity Index?” Although the Prosperity Index ranks and evaluates 110 countries comprising more than 90% of the world’s population. place restrictions on the types of questions that Gallup may ask since they prohibit their citizens from expressing opinions about government. education. we cannot include countries that Gallup doesn’t cover. and Uganda. One sign of an open. and health data. Lithuania. social. thereby expanding country coverage from 104 in 2009 to 110 in 2010. Our hope and long-term goal remains to build an index that includes every single country in the world. some governments. Why? The answer is straightforward: there is not sufficient data available on that country. Countries as diverse as Somalia. Serbia. Moreover. we have been able to find sufficient data on six additional countries. and to make information on its economic. and Suriname are included in the Gallup World Poll. Because our research has found that prosperity encompasses a tremendous array of factors. a closed. governance. Iceland. such as Burma’s or Cuba’s. We urge those governments of nations not included in the Prosperity Index to take whatever steps are needed to make the missing information available – doing so is in the best interest of their own citizens. Syria. effective government is a willingness to allow its citizens to express their opinions freely. This year. but are not covered by enough other data sources to meet the threshold for ranking in the Prosperity Index. 25 . and political conditions available in a transparent and objective manner. Sometimes this reflects a government’s unwillingness or inability to collect or make available the needed data. totalitarian nation such as North Korea does not permit Gallup to survey its citizens.
2010 Legatum Prosperity Index™ Sub-Index Descriptions The 2010 Prosperity Index consists of eight sub-indexes: • Economy • Entrepreneurship & Opportunity • Governance • Education • Health • Safety & Security • Personal Freedom • Social Capital In the following pages. 26 www. and a table listing the variables that we used.prosperity.com . descriptions of the sub-index. for each sub-index. we have provided rankings of the top and bottom 10 countries.
the variables in the sub-index are categorised into these areas. it also finds that rapid increases in GDP are related to lower levels of happiness in a society as people grapple with the dislocations that often accompany such growth. The Economy sub-index measures countries’ performances in four areas that are essential to promoting prosperity: macroeconomic policies. The sub-index demonstrates that outcomes of sound macroeconomic policies.Sub-Index Descriptions Economy Sub-Index Ranking Distribution for Economy Top 10 countries Norway Switzerland Netherlands Denmark Canada Singapore Sweden Australia Finland Hong Kong 6 7 8 9 10 4 5 3 2 1 Bottom 10 countries 101 102 103 104 105 106 107 108 109 110 Senegal Nicaragua Zambia Moldova Central African Republic Ethiopia Kenya Uzbekistan Ghana Zimbabwe Strong ranking countries (Top 30) Average ranking countries (Middle 50) Low ranking countries (Bottom 30) Insufficient data Stable and growing economies increase per capita income and promote the overall wellbeing of its citizens. Variables have been divided into different categories within each sub-index. As illustrated in the chart below. Income and wellbeing bar sizes are not comparable due to differences in scale 27 . and financial sector efficiency. While our research shows that increased economic strength over time is generally good for everyone. foundation for growth. and a competitive economy that facilitates domestic demand and attracts foreign investment are essential to boosting per capital income. It also shows that investing in physical capital per worker. Indicates a variable that is included in only one regression. low rates of inflation and unemployment. such as robust domestic savings rates. innovative high-tech exports. Positive expectations about the future of the economy and satisfaction with living standards also make an important contribution to the overall wellbeing of a country’s citizens. INCOME Macroeconomic Policies Gross Domestic Savings Unemployment Rate Inflation Foundation for Growth Capital Per Worker Market Size High-Tech Exports FDI Size and Volatility WELLBEING Inflation Gross Domestic Savings Employment Status Economic Satisfaction and Expectations Satisfaction with Standard of Living Adequate Food and Shelter Perceived Job Availability Expectations of the Economy 5-year Rate of Growth Financial Sector Efficiency Non-performing Loans Confidence in Financial Institutions Indicates a variable that is included in both income and wellbeing regressions. and an efficient financial sector have a positive impact on both average levels of income and wellbeing. Variables are ordered from largest to smallest within each category. economic satisfaction and expectations.
Specifically. INCOME Entrepreneurial Environment Business Start-up Costs Secure Internet Servers Internet Bandwidth Mobile Phones WELLBEING Secure Internet Servers Mobile Phones per Household Good Environment for Entrepreneurs Business Start-up Costs Innovative Activity R&D Expenditure Royalty Receipts ICT Exports Access to Opportunity Uneven Economic Development Perception that Working Hard Gets You Ahead Indicates a variable that is included in both income and wellbeing regressions. When a country increases the likelihood that entrepreneurial activity will pay off.com . Indicates a variable that is included in only one regression. Such factors as low costs to starting a business and public perception of a good entrepreneurial environment are important to improving citizens’ economic prospects and their overall wellbeing. and when individuals experience the satisfaction that comes from earning their success. The sub-index also assesses a country’s ability to commercialise innovation. the Entrepreneurship & Opportunity (E&O) sub-index measures countries’ performance in three areas: entrepreneurial environment. Lastly. the variables in the sub-index are categorised into these areas. It also uses research demonstrating the positive impact of an individual realising his or her entrepreneurial potential. Variables are ordered from largest to smallest within each category. Variables have been divided into different categories within each sub-index. Income and wellbeing bar sizes are not comparable due to differences in scale 28 www. a society’s prosperity increases overall. innovative activity. it captures elements of access to opportunity by tracking the unevenness of economic development across socioeconomic groups and whether or not citizens believe hard work pays off in the future.prosperity. and access to opportunity.2010 Legatum Prosperity Index™ Entrepreneurship & Opportunity Sub-Index Ranking Distribution for Entrepreneurship & Opportunity Top 10 countries Denmark Sweden United States Finland United Kingdom Norway Ireland Singapore Iceland Canada 6 7 8 9 10 4 5 3 2 1 Bottom 10 countries 101 102 103 104 105 106 107 108 109 110 Mozambique Zambia Nigeria Tanzania Central African Republic Yemen Cameroon Mali Ethiopia Zimbabwe Strong ranking countries (Top 30) Average ranking countries (Middle 50) Low ranking countries (Bottom 30) Insufficient data A strong entrepreneurial climate in which citizens can pursue new ideas and opportunities for improving their lives leads to higher levels of income and wellbeing. as well as the Information and Communication Technology (ICT) infrastructure that exists to enable productive commercial endeavours. The E&O sub-index builds upon scholarship that shows how entrepreneurship drives innovation and leads to economic growth. As illustrated in the chart below.
strength of institutions. As illustrated in the chart below. INCOME Effective and Accountable Government Government Effectiveness Regime Stability Separation of Powers Political Constraints Government Type WELLBEING Efforts to Address Poverty Business and Government Corruption Government Effectiveness Environmental Preservation Separation of Powers Government Approval Rule of Law Rule of Law Regulation Confidence in the Judicial System Regulation Rule of Law Confidence in Military Fair Election and Political Participation Political Rights Voiced Concern Confidence in the Honesty of Elections Indicates a variable that is included in both income and wellbeing regressions. Stable and democratic governing institutions protect political and economic liberty and create an environment of civic participation. Effective. Variables are ordered from largest to smallest within each category. leading to higher levels of income and wellbeing. political freedom. and the military. Variables have been divided into different categories within each sub-index. and accountable governments also increase public confidence. and rule of law. The Governance sub-index measures levels of competition and corruption in the government. Income and wellbeing bar sizes are not comparable due to differences in scale 29 . and regulatory quality are significant contributors to economic growth. Academic research has found that in general.Sub-Index Descriptions Governance Sub-Index Ranking Distribution for Governance Top 10 countries Switzerland Denmark United States New Zealand Canada Sweden Finland Australia United Kingdom Netherlands 6 7 8 9 10 4 5 3 2 1 Bottom 10 countries 101 102 103 104 105 106 107 108 109 110 Russia Pakistan Yemen Belarus Iran Central African Republic Cameroon Nigeria Sudan Zimbabwe Strong ranking countries (Top 30) Average ranking countries (Middle 50) Low ranking countries (Bottom 30) Insufficient data Well-governed societies enjoy national economic growth and citizen wellbeing. the variables in the sub-index are categorised into these areas. The sub-index shows that citizens prefer governments that are stable and accountable. leading to higher levels of life satisfaction among citizens. fair. the judicial system. The Governance sub-index measures countries’ performance in three areas: effective and accountable government. Likewise. Public wellbeing is also related to people’s perceptions of how well the government addresses societal struggles with the environment and poverty. Indicates a variable that is included in only one regression. and citizens’ confidence in elections. fair elections and political participation. the opportunity to have a voice in their government is correlated with happier citizens.
Income and wellbeing bar sizes are not comparable due to differences in scale 30 www. as measured by levels of educational enrolment rates that are equal for both girls and boys. the Education sub-index uses pupil to teacher ratio. therefore. as well as measures of citizens’ perception of education. The Education sub-index demonstrates how access to education. The Education sub-index measures countries’ performance in three areas: access to education. is essential for promoting private sector research and development as well as producing useful knowledge for a society. INCOME Access to Education Gross Secondary Enrolment Net Primary Enrolment Girls to Boys Enrolment Ratio Gross Tertiary Enrolment WELLBEING Gross Secondary Enrolment Gross Tertiary Enrolment Net Primary Enrolment Girls to Boys Enrolment Ratio Quality of Education Pupil to Teacher Ratio Satisfaction with Educational Quality Perception that Children are Learning in Society Human Capital Secondary Education per Worker Tertiary Education per Worker Tertiary Education per Worker Secondary Education per Worker Indicates a variable that is included in both income and wellbeing regressions. which is measured by the average levels of education in the workforce. to assess quality. the variables in the sub-index are categorised into these areas. Variables have been divided into different categories within each sub-index. Variables are ordered from largest to smallest within each category. and human capital. the sub-index uses both objective and subjective variables to assess the quality of education in a given country.prosperity. allows citizens to develop their potential and contribute productively to their society. it shows that human capital stock. This sub-index is built on research on economic growth that has found human capital to be an engine for growth. In addition. making a case for the non-diminishing effect of education on rising GDP levels. While the relationship between higher levels of education and wellbeing is less clear-cut. Indicates a variable that is included in only one regression. As illustrated in the chart below. research shows that basic education enhances people’s chances in increasing their satisfaction with life. Global data on education is limited and. quality of education.2010 Legatum Prosperity Index™ Education Sub-Index Ranking Distribution for Education Top 10 countries New Zealand Australia Finland Norway Denmark Iceland Taiwan South Korea United States Sweden 6 7 8 9 10 4 5 3 2 1 Bottom 10 countries 101 102 103 104 105 106 107 108 109 110 Zimbabwe Yemen Pakistan Senegal Mozambique Nigeria Sudan Ethiopia Mali Central African Republic Strong ranking countries (Top 30) Average ranking countries (Middle 50) Low ranking countries (Bottom 30) Insufficient data Education is a building block for prosperous societies. Because of the importance of citizen’s own perceptions of the educational opportunity available to them.com .
as this fosters strong human capital that leads to productive aggregate economic output. rates of infant mortality and undernourishment. the variables in the sub-index are categorised into these areas. Indicates a variable that is included in only one regression. health infrastructure and preventative care. such as rates of immunisation against diseases and public health expenditure. The sub-index also includes measures of satisfaction with personal health and the health effects of environmental factors such as water and air quality. INCOME Basic Health Outcomes Infant Mortality Life Expectancy Undernourishment Health Infrastructure and Preventative Care Immunisation Against Infectious Diseases Incidence of Tuberculosis Immunisation Against Measles Health Expenditure per Person WELLBEING Infant Mortality Health-Adjusted Life Expectancy Undernourishment Hospital Beds Health Expenditure per Person Water Quality Sanitation Death from Respiratory Diseases Physical and Mental Health Satisfaction Satisfaction with Health Level of Worrying Satisfaction with Environmental Beauty Well-Rested Health Problems Indicates a variable that is included in both income and wellbeing regressions. Income and wellbeing bar sizes are not comparable due to differences in scale 31 . Variables have been divided into different categories within each sub-index. and even environmental beauty. Variables are ordered from largest to smallest within each category. As illustrated in the chart below. The Health sub-index assesses countries by outcomes that are made possible by a strong health infrastructure. and physical and mental health satisfaction. Self-reported wellbeing and self-reported health are commonly found by researchers to be strongly and significantly correlated to a overall society’s health. which in turn leads to higher levels of income per capita. The Health subindex measures countries’ performance in three areas: basic health outcomes.Sub-Index Descriptions Health Sub-Index Ranking Distribution for Health Top 10 countries United States Iceland Switzerland Norway Japan Germany France Austria Sweden Finland 6 7 8 9 10 4 5 3 2 1 Bottom 10 countries 101 102 103 104 105 106 107 108 109 110 Tanzania Uganda Mali Nigeria Rwanda Zambia Zimbabwe Ethiopia Mozambique Central African Republic Strong ranking countries (Top 30) Average ranking countries (Middle 50) Low ranking countries (Bottom 30) Insufficient data A strong healthcare infrastructure in which citizens are able to enjoy good physical and mental health leads to higher levels of income and wellbeing. Countries are also assessed on outcomes such as life expectancy. Mentally and physically healthy citizens are the bedrock of a productive workforce.
The Safety and Security sub-index measures countries’ performance in two areas: national security and personal safety. their overall wellbeing is diminished. the variables in the sub-index are categorised into these areas. then capital. investment. and feeling safe walking alone at night. The Safety and Security sub-index combines objective measures of security with subjective survey responses about personal safety. and people begin to flee. coups. INCOME National Security Group Grievances Refugees and IDPs State-Sponsored Political Violence WELLBEING Group Grievances Demographic Instability State-Sponsored Political Violence Human Flight Refugees and IDPs Civil War Personal Safety Assault Property Stolen Safe Walking Alone at Night Safe Walking Alone at Night Express Political Opinion w/o Fear Assault Indicates a variable that is included in both income and wellbeing regressions. as well as general crime and mistrust stemming from a lack of social cohesion. when citizens worry about their personal safety or whether they will suffer for freely expressing their opinions. and civil war. In addition. Indicates a variable that is included in only one regression. impede economic growth. Variables are ordered from largest to smallest within each category. Scholars have shown that organised political violence such as riots. When people and basic institutions are unsafe and unstable. the ability to express political opinions without fear of persecution. Stable economic environments are necessary for attracting investment and sustaining economic growth. are positively correlated with higher levels of wellbeing. Income and wellbeing bar sizes are not comparable due to differences in scale 32 www. Stability resulting from national security. Similarly. for example.com . conditions that produce fear and uncertainty negatively affect life satisfaction.2010 Legatum Prosperity Index™ Safety & Security Sub-Index Ranking Distribution for Safety & Security Top 10 countries Iceland Norway Finland Ireland Singapore Denmark New Zealand Sweden Slovenia Taiwan 6 7 8 9 10 4 5 3 2 1 Bottom 10 countries 101 102 103 104 105 106 107 108 109 110 Sri Lanka Central African Republic Ethiopia Nigeria Pakistan Uganda Colombia Sudan Kenya Zimbabwe Strong ranking countries (Top 30) Average ranking countries (Middle 50) Low ranking countries (Bottom 30) Insufficient data Societies plagued by threats to national security and personal safety cannot foster growth in average levels of income or wellbeing. Variables have been divided into different categories within each sub-index.prosperity. As illustrated in the chart below. In addition. is a key element in increasing per capita GDP in a country.
Variables are ordered from largest to smallest within each category. The Personal Freedom sub-index measures countries’ performance in two areas: individual freedom and social tolerance. expression. what to believe. and religious diversity. It also assesses how the levels of tolerance for both minorities and immigrants affect countries’ economic growth and citizen satisfaction. their country enjoys higher levels of income and social wellbeing. cultural. have been shown to experience increases in levels of satisfaction among their citizens. and movement on a country’s per capital GDP and the subjective wellbeing of its citizens. and personal autonomy in a society welcoming of diversity. organisation. A strong empirical link exists between individuals’ freedom to choose what to do. There is also a strong link between the levels of tolerance within a society for ethnic. and overall life satisfaction. belief.Sub-Index Descriptions Personal Freedom Sub-Index Ranking Distribution for Personal Freedom Top 10 countries Canada Norway New Zealand Australia Sweden Denmark Ireland Iceland United States Belgium 6 7 8 9 10 4 5 3 2 1 Bottom 10 countries 101 102 103 104 105 106 107 108 109 110 Algeria China Saudi Arabia Zimbabwe Jordan Thailand Yemen Iran Egypt Pakistan Strong ranking countries (Top 30) Average ranking countries (Middle 50) Low ranking countries (Bottom 30) Insufficient data When citizens enjoy their rights to expression. Indicates a variable that is included in only one regression. and the overall satisfaction people enjoy within that society. Societies that strengthen civil rights and freedoms through democratisation. Variables have been divided into different categories within each sub-index. As illustrated in the chart below. the variables in the sub-index are categorised into these areas. Income and wellbeing bar sizes are not comparable due to differences in scale 33 . The Personal Freedom sub-index assesses the effects of freedom of choice. When citizens’ personal liberties are protected. a nation also enjoys higher levels of economic growth. INCOME Individual Freedom Civil Liberty and Free Choice WELLBEING Satisfaction with Freedom of Choice Civil Liberties Perceived Social Tolerance Tolerance for Immigrants Tolerance for Minorities Tolerance for Immigrants Tolerance for Minorities Indicates a variable that is included in both income and wellbeing regressions. belief. where to go.
INCOME Societal Cohesion and Engagement Formal Volunteering Helping Strangers Donations WELLBEING Trust in Others Donations Formal Volunteering Helping Strangers Community and Family Networks Perceptions of Social Support Perceptions of Social Support Marriage Religious Attendance Indicates a variable that is included in both income and wellbeing regressions. Income and wellbeing bar sizes are not comparable due to differences in scale 34 www. as well as community and family networks. As illustrated in the chart below. and donating to charitable organisations impacts the economic and life satisfaction of the populace as a whole. Indicates a variable that is included in only one regression. and it assesses how marriage and religiosity provide support networks that improve wellbeing. family and community ties. and membership within civic groups.2010 Legatum Prosperity Index™ Social Capital Sub-Index Ranking Distribution for Social Capital Top 10 countries Norway Denmark New Zealand Australia Netherlands Switzerland Finland Canada United Kingdom Ireland 6 7 8 9 10 4 5 3 2 1 Bottom 10 countries 101 102 103 104 105 106 107 108 109 110 Ghana Cameroon Central African Republic El Salvador India Iran Rwanda Turkey Bangladesh Pakistan Strong ranking countries (Top 30) Average ranking countries (Middle 50) Low ranking countries (Bottom 30) Insufficient data Social networks and the cohesion that a society experiences when people trust one another have a direct effect on the prosperity of a country. The sub-index also evaluates the levels of trust in a society and the manner in which citizens believe they can rely on others. Variables are ordered from largest to smallest within each category. helping strangers. Religious communities are also an important element in the creation of social capital. The use of the term “capital” in “social capital” reflects an important reality: social networks are an asset that produces economic and wellbeing returns. Variables have been divided into different categories within each sub-index. The Social Capital sub-index measures countries’ performances in two areas: social cohesion and engagement. the variables in the sub-index are categorised into these areas. Empirical studies on the impact of social capital have shown that citizen wellbeing is improved through social trust. And societies with lower levels of social capital have been shown to experience lower levels of economic growth.prosperity.com . This sub-index assesses how factors like volunteering.
as is thought by some.” Aristotle . are chiefly to be found in democracy.“If liberty and equality. they will be best attained when all persons alike share in government to the utmost.
and an analysis of general trends in prosperity for that area. 36 www.com .prosperity. we have provided a list of rankings of the countries in the region.2010 Legatum Prosperity Index™ Regional Analyses The 2010 Prosperity Index consists of five regions: • • • • • The Americas Asia-Pacific Europe Middle East and North Africa Sub-Saharan Africa For each region.
mainly due to worsening levels of governance and social capital. most Latin Americans enjoy relatively high levels of personal freedom and the region’s growing economies are strengthening the levels of prosperity (see the difference between the green and red dots in the graph below). and Argentina. Most markedly. The green dots. The two leading countries of North America have very strong and stable scores on all sub-indexes. are generally below the overall Prosperity score for most countries in the Americas. However. are generally above the overall Prosperity score for most countries in the Americas. Chile. North America is followed – with a substantial gap – by a number of mid-ranked countries. in general. which represent the Governance scores. which represent the Personal Freedom scores. most countries suffer from weak governance that brings down their levels of prosperity.Regional Analyses Regional Analysis: The Americas In terms of prosperity. The region comprises two of the world’s wealthiest economies – the United States and Canada. the least prosperous Latin American countries – Honduras and Nicaragua – went down in the rankings significantly relative to 2009. followed by a series of unevenly developed middle and low-income countries. Personal Freedom Score Governance Score -2 -3 Trinidad and Tobago Costa Rica Dominican Republic Guatemala Nicaragua Argentina Colombia United States El Salvador Venezuela Honduras Uruguay Paraguay Ecuador Panama Mexico Canada Jamaica Bolivia Belize Brazil Chile Peru Prosperity Index Score 37 . such as Uruguay. the Americas are highly diverse with prosperity rankings ranging from Canada at seventh place to Nicaragua at 87th. Costa Rica. The Americas PI Rank 7 10 28 32 33 40 41 44 45 53 55 56 65 67 68 73 75 77 78 81 82 85 Country Canada United States Uruguay Chile Costa Rica Panama Argentina Trinidad and Tobago Brazil Mexico Jamaica Belize Colombia Paraguay Dominican Republic Peru Venezuela Ecuador El Salvador Guatemala Bolivia Honduras Nicaragua Trends in Prosperity Across The Americas NORTH AMERICA CENTRAL AMERICA AND CARIBBEAN SOUTH AMERICA 87 4 3 2010 Prosperity Scores 2 Argentina’s Personal Freedom Score. Personal freedom in Uruguay is almost as high as levels reported in the United States. Conversely. Most of these have gone up in the ranking relative to 2009 and are followed by a cluster of lower-tier countries which offer a more mixed picture. The red dots. 1 0 -1 Argentina’s Governance Score. Latin American countries face a diverse spectrum of challenges and each country has a unique path towards prosperity.
” such as Hong Kong. and pink dots on the graph below). and Korea. The top of the list is dominated by Australia and New Zealand. Asia-Pacific Region PI Rank 4 5 17 18 20 22 27 43 50 52 58 59 60 61 64 70 76 88 91 95 96 109 Country Australia New Zealand Singapore Japan Hong Kong Taiwan South Korea Malaysia Kazakhstan Thailand China Sri Lanka Mongolia Vietnam Philippines Indonesia Uzbekistan India Nepal Cambodia Bangladesh Pakistan Trends in Prosperity Across the Asia-Pacific Region ASIA-PACIFIC EAST ASIA SOUTHEAST ASIA SOUTH ASIA CENTRAL ASIA 5 4 3 2 1 0 -1 -2 -3 -4 -5 -6 Australia New Zealand Hong Kong South Korea China Mongolia Malaysia Thailand Sri Lanka Vietnam Indonesia Cambodia India Nepal Pakistan Bangladesh Kazakhstan Japan Singapore Philippines Uzbekistan Taiwan 2010 Prosperity Scores South and Southeast Asian prosperity comes from strong economic performance which is represented by the green dots. and other “Asian tigers. there are different challenges that the sub-regions face in developing prosperous societies. but the region suffers from low levels of entrepreneurship and opportunity. which are bringing down the sub-region’s overall prosperity (see the difference between the green. followed by Singapore. Prosperity in East. red.prosperity. While there is no one-fix solution to raising prosperity in this region. citizens’ personal freedom is often hampered by societal pressures. Taiwan. the best-performing countries of Asia and the Pacific have preserved.2010 Legatum Prosperity Index™ Regional Analysis: Asia-Pacific Region The Asia-Pacific region covers a great variety of countries. Southeast. In contrast. but higher levels of entrepreneurship and opportunity raise the sub-region’s prosperity.com . While East Asian countries generally score well above global averages. which are represented in the red dots. and Pakistan share their ranks with some of the Sub-Saharan African countries. it is clear that fostering a better entrepreneurial culture will benefit many of the lower ranking countries. South. In East Asian countries. Cambodia. relatively low levels of personal freedom in the region brings prosperity down for most countries. but there are no other general trends that are characteristic of most of the region. While there have been both increases and decreases in prosperity in the region. their relative position in the global ranking. and Central Asian countries have relatively low levels of entrepreneurship and opportunity. Nepal. or even improved. South. Japan. spread throughout the 2010 Prosperity Index rankings. and Southeast Asia is raised by relatively strong performing economies. Bangladesh. Economy Score Personal Freedom Score Entrepreneurship & Opportunity Score Prosperity Index Score 38 www. As one would expect. In the bottom tier.
education. However. and Finland. with the former generally performing better than the latter. This means good overall governance is what commonly raises levels of prosperity in North/Western Europe. followed by a number of other countries of Northern and Western Europe. while challenges with governance brings Eastern European prosperity down. The Central and Eastern European countries and Southern European nations are then scattered in the lower tiers of the ranking. Europe PI Rank 1 2 3 6 8 9 11 12 13 14 15 16 19 21 23 24 25 26 29 34 35 37 38 Country Norway Denmark Finland Sweden Switzerland Netherlands Ireland Iceland United Kingdom Austria Germany Belgium France Slovenia Spain Czech Republic Italy Portugal Poland Hungary Estonia Slovakia Croatia Greece Lithuania Bulgaria Latvia Romania Belarus Russia Ukraine Macedonia Moldova Trends in Prosperity Across Europe NORTHERN EUROPE WESTERN EUROPE EASTERN EUROPE 39 42 46 47 Governance Score Prosperity Index Score 5 51 54 63 69 72 86 4 3 2010 Prosperity Scores 2 1 0 -1 -2 -3 Netherlands Switzerland United Kingdom Portugal Sweden France Austria Czech Republic Norway Iceland Slovenia Croatia Latvia Romania Belarus Macedonia Denmark Germany Belgium Finland Ireland Spain Italy Greece Poland Hungary Estonia Slovakia Lithuania Bulgaria Russia Ukraine Moldova The blue dots which represent Governance scores are generally above the overall Prosperity score for Northern and Western European countries and below the Prosperity score for Eastern European countries. the other European nations are more varied in terms of what make them prosperous. suggesting that these three areas might represent the most important assets for the transitional nations of Eastern Europe. Eastern European countries have a lot of similarities in terms of what makes them prosperous and the challenges they face. while Eastern Europe continues to struggle with poor governance that hinders prosperity in the sub-region (see the difference in the placement of the blue dots in the graph below). The main difference is that Western Europe benefits from good governance. 39 . these countries have weaker governance and social capital. Generally. Denmark. there is a clear divergence between Western and Eastern Europe.Regional Analyses Regional Analysis: Europe The top three places in the 2010 Prosperity Index ranking are occupied by Nordic countries: Norway. While the Nordic states and the countries of North-Western Europe occupy top places in the rankings. but there are signs of hope: countries with a lower overall score perform relatively well on health. and safety.
However. -3 Health Score -4 Economy Score Personal Freedom Score -5 United Arab Emirates Kuwait Israel Saudi Arabia Tunisia Algeria Jordan Turkey Lebanon Morocco Yemen Egypt Syria Iran Prosperity Index Score 40 www. has solidly mid-range scores on Health and Education sub-indexes.2010 Legatum Prosperity Index™ Regional Analysis: Middle East and North Africa In general.prosperity. raising the levels of prosperity in the region. Overall. The United Arab Emirates (UAE) and Kuwait have the highest levels of personal freedom in the region. which represent Health and Economy scores for MENA countries are generally above the black line. most of the countries in the region display one disturbing trait: pervasive limits on personal freedom are driving down prosperity in the region (see the difference between the light and dark green versus the red dots on the graph below). for example. but this is likely due to the fact that non-Arab expatriates. the Middle East and North Africa (MENA) are characterised by relatively strong performances in the Health and Economy sub-indexes. were not allowed to be surveyed in these countries. the Index strongly suggests that many of the Middle Eastern countries would benefit from adopting more open and tolerant institutions that allow for citizens to freely choose the course of their lives. where it is followed only by Egypt and Pakistan.com . who make up half of the UAE population and one-fifth of the Kuwaiti population. which represents the overall Prosperity scores. which represent the Personal Freedom scores for MENA countries generally fall below the black line. Middle East and North Africa PI Rank 30 31 36 48 49 62 74 79 80 83 84 89 92 105 Country United Arab Emirates Kuwait Israel Tunisia Saudi Arabia Morocco Jordan Algeria Turkey Syria Lebanon Egypt Iran Yemen Trends in Prosperity Across the Middle East and North Africa MIDDLE EAST NORTH AFRICA 3 2 2010 Prosperity Scores 1 The light and dark green dots. Iran. but that is offset by an extremely low ranking of 108 on the Personal Freedom sub-index. which represents the overall Prosperity scores. 0 -1 -2 The red dots.
are continuing their ascent in the overall ranking. they may pave a path towards prosperity for other African nations. levels are above the global average. and in some countries. This is the case in particular for countries that are on the verge of being failed states and display relatively higher levels of social capital to make up for the inability of their citizens to use formal institutions. South Africa. which represent the Education and Health scores for Sub-Saharan countries generally fall below the black line. which are in the neighbourhood of middle-income countries like Mexico. In terms of regional trends. But the picture isn’t entirely pessimistic. which represents the overall Prosperity scores. These three countries. The exceptions to this are Botswana.) Finally. unlike the rest of Sub-Saharan Africa. as well as the global average performance). this region shows that social capital and good governance can act as substitutes. All Sub-Saharan African countries perform worse than the world average in these sub-indexes (see how the red and pink dots fall below the lines representing overall prosperity. and Namibia. poor health and education brings overall prosperity down in the region. Citizens in Sub-Saharan Africa tend to enjoy relatively high levels of personal freedom. Sub-Saharan Africa PI Rank 57 66 71 90 93 94 97 98 99 100 101 102 103 104 106 107 108 110 Country Botswana South Africa Namibia Ghana Mali Senegal Tanzania Rwanda Uganda Sudan Zambia Cameroon Mozambique Kenya Nigeria Ethiopia Central African Republic Zimbabwe Trends in Prosperity Across the Sub-Saharan Africa 2 1 2010 Prosperity Scores 0 -1 -2 -3 The red and pink dots.Regional Analyses Regional Analysis: Sub-Saharan Africa Most Sub-Saharan African countries are among the worst-performing in the world. with most of them ranking in the bottom 15. -4 Health Score -5 Education Score Personal Freedom Score -6 Central African Republic South Africa Tanzania Cameroon Mozambique Zimbabwe Botswana Namibia Senegal Rwanda Uganda Nigeria Ghana Mali Zambia Kenya Ethiopia Sudan Prosperity Index Score 41 . or Indonesia. Russia. which represents the overall Prosperity Index scores. suggesting that by example. (See how the green dots are above the black line.
as well as the number of places that countries have moved up or down.prosperity. please see page 24. so that we can compare ‘apples to apples’. The methods for determining the rankings in 2010 have changed since the 2009 edition. For a full description of why and how we altered our methods this year.2010 Legatum Prosperity Index™ 2009 versus 2010: An ‘Apples to Apples’ Comparison So how have countries fared since last year? The chart to the right shows 2009 and 2010 rankings.com . The chart on the right uses the 2010 methodology to reproduce rankings for 2009. 42 www.
2009 versus 2010: An ‘Apples to Apples’ Comparison Country Norway Denmark Finland Australia New Zealand Sweden Canada Switzerland Netherlands United States Ireland Iceland United Kingdom Austria Germany Belgium Singapore Japan France Hong Kong Slovenia Taiwan Spain Czech Republic Italy Portugal South Korea Uruguay Poland United Arab Emirates Kuwait Chile Costa Rica Hungary Estonia Israel Slovakia Croatia Greece Panama Argentina Lithuania Malaysia Trinidad and Tobago Brazil Bulgaria Latvia Tunisia Saudi Arabia Kazakhstan Romania Thailand Mexico Belarus Jamaica Overall Country Rank 2010 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 Country 0 0 1 1 -2 1 -1 0 2 0 -2 0 0 0 1 -1 0 1 -1 1 2 0 -3 0 1 -1 2 4 -1 -3 3 3 -3 4 -4 -3 0 1 -3 2 3 -2 0 2 0 1 -6 8 8 1 -3 2 -4 1 -3 s t s s s t s t s t s s t s s t s t s s t t s s t s t t t s t s s s t t s s s t s t Belize Botswana China Sri Lanka Mongolia Vietnam Morocco Russia Philippines Colombia South Africa Paraguay Dominican Republic Ukraine Indonesia Namibia Macedonia Peru Jordan Venezuela Uzbekistan Ecuador El Salvador Algeria Turkey Guatemala Bolivia Syria Lebanon Honduras Moldova Nicaragua India Egypt Ghana Nepal Iran Mali Senegal Cambodia Bangladesh Tanzania Rwanda Uganda Sudan Zambia Cameroon Mozambique Kenya Yemen Nigeria Ethiopia Central African Republic Pakistan Zimbabwe Overall Country Rank 2010 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 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 2009 1 2 4 5 3 7 6 8 11 10 9 12 13 14 16 15 17 19 18 21 23 22 20 24 26 25 29 32 28 27 34 35 30 38 31 33 37 39 36 42 44 40 43 46 45 47 41 56 57 51 48 54 49 55 52 Movement 2009 53 59 58 68 60 50 66 62 61 64 67 69 71 63 85 74 70 72 75 76 65 77 81 91 80 82 84 86 90 79 83 73 78 87 89 88 93 94 92 101 95 96 105 102 106 98 99 104 97 100 103 108 109 107 110 Movement -3 2 0 9 0 -11 4 -1 -3 -1 1 2 3 -6 15 3 -2 -1 1 1 -11 0 3 12 0 1 2 3 6 -6 -3 -14 -10 -2 -1 -3 1 1 -2 6 -1 -1 7 3 6 -3 -3 1 -7 -5 -3 1 1 -2 0 s s s s t t t t t t t s s t s t t s s s t t s t t t s s t s s t s t t t s s s t s s t t s s t s t s 43 .
2010 Legatum Prosperity Index™ Legatum Prosperity Index Academic Advisory Panel ™ Legatum Institute (www. Harvard University Allan Stam. Harvard University Thomas Sander.prosperity. Legatum Institute also wishes to thank the American Enterprise Institute (www. Copyright Gallup 2010. Johns Hopkins. Brookings Institution Robert Jensen. Duke University Carol Graham.aei. Tufts University Peter Feaver. Legatum Institute recognises Oxford Analytica (www.com) wishes to thank the members of the Academic Advisory Panel for their helpful advice. All Rights Reserved. School of Advanced International Studies Edmund Malesky.org) for their assistance and guidance in helping develop the Index methodology. Oxford University Daniel Drezner. 44 www. critiques. Harvard University Phil Levy. Terry Babcock-Lumish. for permission to use the Gallup World Poll Service© and Gallup World Poll Data in construction of the Prosperity Index.li. an independent consultancy that has for 30 years provided authoritative analysis of geopolitical events. Duke University Legatum Institute also wishes to thank Gallup. University of California. University of Michigan Erik Wibbels. Hamilton College Robert Putnam. Finally. Inc. and suggestions.oxan. Participation in the Academic Advisory Panel does not imply endorsement of every aspect of the Prosperity Index. Los Angeles Stephen Krasner.com . Legatum Institute assumes full responsibility for the content of the Prosperity Index. San Diego Ann Owen. for its assistance in compiling and analysing the Prosperity Index data. University of California.com). American Enterprise Institute Thomas Mahnken. Stanford University Michael Kremer.
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