THE 2010

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)

Personal Freedom

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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Social Capital

Overall Rank

Governance

Education

Economy

Country

Health

Introduction

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.

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“Freedom is indivisible... peace is indivisible... economic prosperity is indivisible.”
Indira Ghandi

The Financial Crisis and the Index 3. What Makes Countries Both Happier and Wealthier? 4. Why Another Index? 2. What is Going On Up North? 5. Where is My Country? 7 11 13 19 25 3 .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.

Kennedy 4 www.” Senator Robert F.2010 Legatum Prosperity Index™ “. 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. the quality of their education or the joy of their play. in short. Gross National Product counts air pollution and cigarette advertising.com . the intelligence of our public debate or the integrity of our public officials… It measures everything. except that which makes life worthwhile...prosperity. It does not include the beauty of our poetry or the strength of our marriages.

and will use the term “wellbeing” to signify “life satisfaction” or “happiness. While there appear to be some common foundations shared by prosperous countries – such as economic liberty. healthy citizens. 2. 3. There are 108 states and two territories – Hong Kong and Taiwan – in the Index. and interested citizens around the world. scholars. and strong communities – it remains a fact of history that each nation needs to find its own path to success. they can help create an environment that is conducive to entrepreneurship. each of which has a demonstrated effect on economic growth or on personal wellbeing. journalists.” Each of the sub-indexes provides us with two important analyses: first. and human flourishing. The Index consists of eight sub-indexes. By examining how the underlying data in different sub-indexes interact. 1 The term “country” is used loosely to refer to the 110 societies that are in the Prosperity Index. accounting for over 90 percent of the world’s population. the Prosperity Index allows us to discover the non-economic effects of economic reality. earned success. The Entrepreneurship & Opportunity sub-index looks at how enterprising societies contribute to both the economy and citizens’ satisfaction with their lives. we will use the term “income” and “wealth” interchangeably. Ultimately. each of which represents a fundamental aspect of prosperity: 1. 7. 8. human rights. Throughout this report. 5. and is based on 89 different variables. 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. 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. the Education sub-index looks at how educational factors contribute to economic growth and a nation’s overall level of happiness. and the effects of economic indicators on life satisfaction. 4. an assessment of a country’s subjective wellbeing. The Prosperity Index consists of eight sub-indexes based upon years of research into the sources of economic growth and quality of life. or happiness. In this way. Each sub-index assesses the effect of a range of variables on per capita GDP and the subjective wellbeing of citizens. And so on. For instance.The Scope of the 2010 Legatum Prosperity Index™ The Scope of the 2010 Legatum Prosperity Index™ The Prosperity Index™ assesses 110 countries 1. business leaders. accountable government. an economic assessment. Moreover. and second. we can begin to uncover intriguing insights and applications. 5 . 6. while governments by themselves cannot create or mandate prosperity.

com . Holistic prosperity extends beyond just material wealth. effective governance.2010 Legatum Prosperity Index™ The purpose of the Prosperity Index is to encourage policymakers. and the interested public to take a holistic view of prosperity and to understand how it is created. human rights and liberties. It includes factors such as social capital. the media. opportunity.prosperity. scholars. 6 www. security. health. and overall quality of life.

Both of these dimensions are necessary to provide a holistic picture of prosperity. It identifies as many factors as possible that make a significant contribution to GDP growth or subjective wellbeing (SWB). as it is generated and experienced. the World Bank Governance Indicators. Our hope is that. The Prosperity Index looks at everything. To start. A third unique aspect of the Prosperity Index is its use of both objective and subjective data. the World Economic Forum’s Global Competitiveness Index.” Many other indexes focus just on one or two issue areas. 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. It measures both the actual performance of countries as well as citizens’ perceptions of their lives. the Human Development Index. the Global Peace Index. which together comprise “prosperity. more technically. “the subjective wellbeing” of a country’s citizens). health. The Prosperity Index utilises other helpful indexes such as the Wall Street Journal/Heritage Foundation’s Index of Economic Freedom. such as economic policy. 7 .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. Second. 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 Prosperity Index is unique because of the broad and diverse range of factors it includes. 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. alongside the insights provided by these and other indexes. the Prosperity Index is the world’s only global assessment of wealth and wellbeing. or happiness.

It is an exploration into the sources of prosperity and how they relate to each other.prosperity. test conventional wisdom. 8 www.2010 Legatum Prosperity Index™ Key Findings The Prosperity Index is about more than country rankings.com . This section contains some of the many interesting findings revealed by the Index’s unique analysis. and find new policy applications for national growth and wellbeing. 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.

3. 10. 5. Choice and opportunity matter more to happiness than making a lot of money quickly. 2. Prosperity is a blend of wealth and happiness. 4. Two Europes are emerging.Key Findings The findings fall into three main categories: I. but not as one might think. Prosperity is about balance. 1. Prosperity is found in entrepreneurial democracies that have strong social fabrics. 6. 7. and happiness cannot be explained only by subjective emotions. II. It’s hard to be prosperous as a large country. 9. Entrepreneurship and opportunity correlate more closely to a nation’s overall prosperity than any other factor. Material wealth cannot be explained only by economic factors. Global prosperity is changing in unexpected ways. 8. Economic growth is not enough for the BRICs. Improved governance is emerging as a key driver of prosperity in Sub-Saharan Africa. III. It pays to be a democracy. 9 . Changes in the “social fabric” of a country can lead to big changes in national prosperity.

1. levels of entrepreneurship and access to new opportunities actually provide the best proxy to understanding how prosperous a society can be.prosperity. The E&O sub-index is an important gauge of the way in which a society commercialises innovation. social capital. than to any other sub-index. the E&O sub-index still correlates with the overall rankings.com . The overall Prosperity Index rankings correlate more closely to the Entrepreneurship & Opportunity (E&O) sub-index. are critical. education. which constitute the cornerstone of long-term prosperity. Prosperity is found in entrepreneurial democracies that have strong social fabrics.2010 Legatum Prosperity Index™ Here are some of the most interesting findings from this year’s Index: I. or even the economy. it is imperative that economic policies in the current recession do not erode the incentives to be entrepreneurial and innovative. Entrepreneurship and opportunity correlate more closely to a nation’s overall prosperity than any other factor. 101 81 61 41 21 1 2010 Entrepreneurship & Opportunity Rankings 10 www. INSIGHT: In the wake of the global financial crisis. If we create an average ranking of only the income-related portions of all eight sub-indexes. encourages new businesses. some governments might have been tempted to impose protectionist tariffs or complex regulations which could discourage business activity. Given the importance of entrepreneurship for overall prosperity. How well a country does in these areas goes a long way to explaining how well it will do promoting prosperity more generally. 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. 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. and fosters a sense among its citizens that hard work is rewarding. This implies that while other foundations such as health.

However. but rather the structural. then entrepreneurship and business activities can be discouraged and the crisis can have a more permanent impact on global wealth and wellbeing. the world economy shrank by 0. It is thus conceivable that the financial crisis will affect the scores. we should stress that the purpose of the index is not to track directly the fluctuations in income. The Entrepreneurship and Opportunity sub-index is related very tightly to material prosperity. we can see a clear decline in measures of confidence in financial institutions in many countries of the world. How has the crisis affected the 2010 Prosperity Index? On the one hand. which quickly translated itself into a global recession. prohibitive tax rates. the recovery is still fragile in many regions of the world.6 percent in 2009 and while the global output is expected to grow by around 4. those parts of the Index which make use of measures of the real economy do not seem to be affected. 11 . institutional. As of yet. On the other hand. 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. and maybe also the countries’ rankings. if governments respond to the crisis by imposing complex regulations. and cultural underpinnings of global prosperity. For example. According to the IMF. In principle. the world has been hit by a major financial crisis. or protectionist tariffs.5 percent in 2010. weakening the countries’ scores on the Economy sub-index. partly because much of the data predates the crisis. the crisis could have a lasting effect on global prosperity if governments followed policies that tend to erode these foundations. in 2011. particularly in parts of Western Europe and in the United States.Key Findings Feature Two Financial Crisis and the Index Since mid-2008.

they are nonetheless important to overall prosperity. House survey. tolerance. INSIGHT: Shifts in mores.” exemplified by nations such as China and Russia. While survey results (on which many of our social capital and governance findings are based) are more volatile than other forms of data. 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. both in economic growth and life satisfaction. democracies produce happier. asset valuation. with accountable leaders and citizens who are free to speak. Economic principles such as market transparency. Changes in the “social fabric” of a country can lead to big changes in national prosperity. Twenty three out of the top 25 societies in the Prosperity Index are electoral democracies. 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.2010 Legatum Prosperity Index™ 2. Algeria. and worship. and healthier citizens. 12 www. and the free flow of capital depend on political systems that are grounded in rule of law. It pays to be a democracy. property and shareholder rights. -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. In both cases. the single best national model for sustaining wealth creation and happy citizens remains democratic capitalism. this was a result of significant improvements in social capital. such as education and human capital. Moreover. The main factors behind the changes in social capital were survey responses – this shows that large changes in public attitudes in Indonesia. Indonesia has improved by 15 places to 70 and Algeria has improved by 12 places to 79. Conversely. 23 are democracies. Indonesia and Algeria have improved the most in their Prosperity Index rankings since 2009. As Harvard economist Dani Rodrik observed. Nicaragua experienced the largest decrease in rankings by 14 places. satisfaction with freedom of choice and other social attitudes and practices clearly have direct implications on national prosperity. led to significant changes in overall prosperity.com . mainly due to significant declines in social capital and governance. Rapid swings in social attitudes may thus be a lead indicator of significant changes to come. but also outdo them in several other important respects”.prosperity. Democratic nations turn in the strongest performances across the board in every sub-index. “democracies not only out-perform dictatorships when it comes to long-term economic growth. assemble. think. safer. and Nicaragua.

and then the top 10 countries by life satisfaction. 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. suggesting that an environment onerous to entrepreneurship is bad for the economy as well as people’s perceptions about opportunities in their lives. Poorer economic performances and lower levels of life satisfaction are related to higher inflation rates. and levels of secondary and tertiary education per worker are all related to economic prosperity and life satisfaction. Business start-up costs and ICT infrastructure also have strong relationships with both income and wellbeing. honest and efficient governance. By promoting economic prosperity. they promote happiness. Australia Canada. we see a lot of overlap. the best-performing countries additionally benefit from democratic political systems. and enterprising citizens. More than thirty variables in the Index have a relationship with both. New Zealand. 13 . and the reliability of others are not only linked to happy people – but they are also characteristic of strong economies. Also. Netherlands Austria Norway. when a country provides strong national security. girls to boys’ enrolment ratio. volunteering. in a mutually-reinforcing virtuous cycle. gross secondary and tertiary enrolment. the extent of regulation in the business sector and a government’s effectiveness are both related to wealth and wellbeing. helping strangers. Prosperity is about balance. Switzerland United States Ireland Feature Three What Makes Countries Both Happier and Wealthier? In the Legatum Prosperity Index’s eight sub-indexes. Strong human capital formation in a country has more than an economic impact: it also produces citizens who are more satisfied with their lives. The Prosperity Index also shows us that traditionally non-economic factors have more than non-economic effects.Key Findings 4. Finland Sweden. In education. INSIGHT: The world’s most prosperous countries are very well-balanced countries. citizens are not only happier. And important measures of social capital such as donations. If we break down the methodology and look at the top 10 countries by economic performance. Tolerance for immigrants and ethnic minorities has a modest effect on both material prosperity and wellbeing. net primary school enrolment. 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). and vice versa. Denmark. In fact. The Prosperity Index rankings combine measures of economic growth and measures of life satisfaction. we have included variables that have a significant relationship with per capita GDP or life satisfaction as tracked by the Gallup World Poll. but they are also able to enjoy higher levels of income.

6. Zambia Cameroon Mozambique Kenya Yemen Nigeria Ethiopia Central African Republic Pakistan Zimbabwe II. High levels of trust in a society are necessary for trust-based capital markets to function. 110. 8. and happiness cannot be explained only by subjective emotions. 9. Material wealth cannot be explained only by economic factors. but not as one might think. 102. and even internet connectivity. 14 www. such as people’s perceptions of each other’s trustworthiness. such as employment status. For instance. Likewise. 108.prosperity.2010 Legatum Prosperity Index™ Prosperity Around the World 7 Top 10 countries 1. 103. 5. a “soft issue”. 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. and fear is not only unenlightened – it is ultimately self-defeating. 5. has a strong positive correlation with economic performance. 107. 2. economic factors. Prosperity is a blend of wealth and happiness. 10. isolation.com . 105. Saying that one cares about the economy while not caring about factors such as distrust. 109. 7. When it comes to the conditions of happiness. 104. 106. 3. Norway Denmark Finland Australia New Zealand Sweden Canada Switzerland Netherlands United States 10 Bottom 10 countries 101. domestic savings rates. 4. an increased level of tolerance toward immigrants is associated with higher levels of GDP per capita. have a strong influence on how satisfied people are with their lives.

the belief that hard work helps one get ahead is an important factor. Choice and opportunity matter more to happiness than making a lot of money quickly. The process of creating leads to decreased wellbeing among citizens. while fast growing economies may improve societies.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. on the other hand. than the wealth the process actually creates. may lead to a decrease in a nation’s prosperity. wealth through hard work. creative endeavour. 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. does not necessarily lead to more happiness – statistically. GDP growth pursued through narrow. However. 15 . INSIGHT: When people believe opportunity is real and that it pays to pursue a dream. happiness also follows suit. higher rates of GDP growth are correlated with lower levels of wellbeing. 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. Thus. top-down policies that do not take citizen wellbeing into account. When it comes to happiness. Fast economic growth. when growth occurs as a rewarding output to people’s and taking risks is more important to happiness productive pursuits.

Italy.' Interestingly. In the overall rankings. and Spain moved from 20th to 23rd. Three of the four original PIGS also rank lower than they did last year. 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. such those in its southern regions. In fact. Ireland has dropped two places in terms of its overall Prosperity Index ranking – from 9th in 2009 to 11th in 2010. Global prosperity is changing in unexpected ways. and Spain) score higher in prosperity than the remaining Western European nations. Greece moved from 36th to 39th. the Baltic countries are rapidly falling behind the rest of the EU. 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. have well-known economic problems. Ireland's performance in the Economy. 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. they rank lower than some Eastern European nations: Slovenia scores higher than all of the original PIGS. with the largest drop in ranking occurring in the Economy sub-index. and Slovakia and Croatia have overtaken Greece. when referring to the 'troubled 'PIGS. Entrepreneurship & Opportunity. Some analysts have recently replaced Italy with Ireland. and Education sub-indexes have decreased since 2009. Additionally. Portugal moved INSIGHT: The Index shows that the gap between successful and unsuccessful European countries is widening. the Czech Republic is ranked higher than Italy and Portugal. These Southern European and Baltic EU states are diverging from the other EU nations as their levels of prosperity drop. from 25th to 26th. Greece. Two Europes are emerging.2010 Legatum Prosperity Index™ III. 7. 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. Governance.com . Troubled European nations.prosperity.

On the Personal Freedom sub-index. Portugal or Italy. -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 . driven by some surprising successes in the sub-indexes. In terms of overall prosperity. Botswana. a number of other African countries. ahead of Slovenia. Africa: Good Governance Increases Prosperity Although most African countries fall well below the global average. and 35th on the Personal Freedom sub-index. scores 25th on the Governance sub-index. or Cameroon score better than some Eastern European countries. progress among the top performers indicates that Africa has significant bright spots. such as Senegal. Mali. The index shows that the most successful African countries owe their success to radical improvements in the quality of their governance. South Africa and Namibia are leading in the region. Botswana. While Sub-Saharan Africa still dominates the lower tier of the rankings. particularly in establishing confidence in the military and in the judicial system. INSIGHT: African growth is one of the most underreported news stories of this decade.Key Findings 8. Namibia is 44th on the same Governance sub-index. for instance. It also ranks 21st on the Personal Freedom sub-index. one can find some encouraging differences among African countries. Improved governance is emerging as a key driver of prosperity in Sub-Saharan Africa. better than Greece or Latvia.

the BRICs’ current situation is precarious. INSIGHT: Global conventional wisdom has come to accept the hard-charging nature of the BRICs’ economies. INSIGHT: The USA and Japan. USA: Top Ranking Large Country 1 Overall Prosperity Index Ranking 21 41 61 The US. which dominate the upper tier of the world’s largest countries. but looking at economic growth alone can gloss over their deep deficiencies in other areas essential to long-term. Russia. its improvements have been offset by decreased rankings in Education. While the economy may be improving. Entrepreneurship & Opportunity. a majority of them are marked by imbalanced. places in the top 15 in seven subindexes. primarily due to its drop in the Personal Freedom sub-index. Following the 2008 Mumbai attacks. have been regarded as leaders among emerging economies. In order to go from emerging economies to prosperous nations. 18 www. the perceived tolerance of Indians towards immigrants has fallen substantially. Most of the other large countries do not break into the top 20 in any sub-index. India’s ranking has decreased the most by 10 places since 2009. The BRICs (Brazil. with Russia still suffering from its notorious (and worsening) troubles with Personal Freedom. when we look at prosperity holistically. governments. it still trails 40 places behind Japan at 58 in terms of its overall prosperity.com . India and China).2010 Legatum Prosperity Index™ 9. sustainable prosperity. It’s hard to be prosperous as a large country. or even corrupt. Governance. Personal Freedom. Although China has recently overtaken Japan as the world’s second largest economy. Perhaps unsurprisingly. and Safety & Security. contributing to a drop in the levels of Personal Freedom. which have more than 40% of the world’s population.prosperity. 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. Only one nation in this group. Brazil and Russia have changed relatively little over the past year. the United States. and Social Capital sub-indexes. the BRICs will have to foster improvements in areas beyond economic factors. Economic growth is not enough for the BRICs. Large populations bring unique challenges as well as opportunities. In spite of the headlines about the rise of the BRICs. according to the Gallup World Poll. China has improved the most by climbing up the ranks in the Economy. Health. also ranks among the top 10 countries in the Prosperity Index. However. 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. the proportion of Chinese who feel free to determine the course of their lives decreased from 85% in 2008 to 77% in 2009. 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. which ranks at 10 in the Prosperity Index. stand out primarily because each has at least over a half century of experience with the institutions of democratic capitalism. However.

if one were to average Denmark’s scores in that Index’s eight categories related to economic performance. and others. then. Recent research has shown that Nordic countries were among the most aggressive “neoliberal” reformers of the 1980s and 1990s. Denmark. 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. However tempting such a conclusion might be. Danish labour markets combine a very low level of job protection and rigidity with generous unemployment benefits. Swedish economic growth accelerated as it reduced its government spending throughout the 1990s. and Finland.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. it would be ill-informed. give themselves credit. the Nordic countries now rank among the economically freer regions of Europe. As an example. Why is this? Further research shows that a high level of public spiritedness allows welfare states to foster economic and social wellbeing. Despite large governments and fairly high tax rates. This is a system that would – without a high degree of trust and public spiritedness – have generated moral hazard issues and unemployment. One important consideration for economic growth. 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. Additionally. 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. 19 . 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. Sweden.

and categorises them into eight sub-indexes. Using this research. While each country’s path to prosperity is varied. a country that performs well in educating its workers probably also has an innovative economy. They are both the causes and consequences of high levels of income and wellbeing. decades of established theoretical and empirical research on economic growth and wellbeing have identified some common themes. we were able to include additional variables that enabled each sub-index to include both income and wellbeing dimensions.prosperity. it is important to keep in mind that the relationships between these variables and foundations are complex. For instance. due to increased data availability. please refer to the full report. Of course. This section provides an overview of the sub-indexes. The 2009 Index featured nine sub-indexes. For the 2010 Index. which can be found at www. and in many cases also relate to each other. It explains how we determined the importance of each variable and calculated a country’s overall prosperity score.com . For additional information on the construction of the Index.com. the other seven sub-indexes only measured how each sub-index related to either income or wellbeing. Due to limitations in data availability. two of which (essentially) measured income and wellbeing dimensions of governance. The Prosperity Index identifies 89 variables that are linked to higher levels of income and wellbeing. Each sub-index is based on analyses of the factors that lead to higher levels of both income and wellbeing. each of which is considered to be a fundamental pillar of prosperity. the Prosperity Index uses econometric analyses to identify eight sub-indexes that are critical for prosperity.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. 20 www.prosperity.

Each sub-index is created through statistical analysis of what increases both the per capita income and life satisfaction of a country’s citizens. equally weighted The Prosperity Index is divided into eight different sub-indexes. risk-taking. relationships. and institutions lead to higher levels of wellbeing and economic productivity? 21 . 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. Economy Entrepreneurship & Opportunity Governance Education Health Safety & Security Personal Freedom Social Capital At a very basic level. think. and worship also promote higher levels of income and wellbeing? Social Capital – What kinds of social networks. 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. 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.How We Built the Index: Methodology What are the foundations of prosperity? 2010 Prosperity Index Eight Sub-indexes. assemble. each of which has been identified as a foundation of prosperity.

statistically speaking. It is important to note that these fundamental characteristics have not been arbitrarily selected. but also citizens’ sense of wellbeing. For those familiar with econometric terminology. changes from the 2009 Index. yet fairly complex.com. we used GDP per capita as the dependent variable in these GMM panel regressions. we used a method called ordered logistic regression on cross-sectional data. The regressions estimate a “weight” for each variable – or a “coefficient” for the more technically inclined. In other words.com .prosperity. This weight represents the variable’s relative importance as a factor of prosperity. These characteristics are measured by 89 variables that are a combination of objective data and subjective responses to surveys. are presented in the full Prosperity Index Report. In this analysis. Further discussions on these estimation methods. This survey item measures individual life satisfaction or subjective wellbeing. Each sub-index includes both types of regressions.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. We have determined the importance of each of these variables to higher levels of income or wellbeing by using well-established.prosperity. For instance. we used General Methods of Moments (GMM) regressions. 22 www. and the rationale for using our specific measures of income and wellbeing. a country’s economy or quality of governance not only impacts income levels. We represent these weights in the bar graphs in each of the sub-index descriptions that follow. which is available at www. some things matter more to prosperity than others. regressions (a way of statistically determining which variables matter most). In order to determine the factors leading to greater economic prosperity. but are drawn from established theoretical and empirical research on the significant drivers of economic growth and wellbeing. since each foundation of prosperity has both income and wellbeing dimensions. In order to determine what leads to higher levels of wellbeing. we used survey data from the ‘Life Today’ question in the Gallup World Poll as the dependent variable.

Average the income and wellbeing scores to get the overall sub-index score. we offer you the opportunity to give your own weightings to each of the sub-indexes. based on a combination of its performance in the different variables and the varying levels of importance these variables.prosperity. Those that are statistically relevant will have a significant coefficient... Retain variables that are statistically relevant to income or wellbeing. = Income score = Wellbeing score 3. ‘Life Today’ = B8 X8 + B9 X9 + B10 X10 + . How the Sub-Index Scores are Calculated Sub-Index Income Wellbeing 1.. The countries are ranked based on these scores to produce the overall Prosperity Index rankings. In a few instances. X2 X1 X5 X3 X6 X4 X7 X8 X9 X10 X13 X11 X14 X12 X15 GDP/Capita = B1 X1 + B2 X2 + B3 X3 + . please go to the full report. the Prosperity Index gives equal weighting to the sub-indexes to allow us to compare countries across sub-indexes. These sub-index scores are then averaged to produce a country’s overall prosperity score. B1 * x1 + B2 * x2 + B3 * x3 + . which is available on our website. Identify variables that go into each sub-index.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. certain variables will matter to both. B8 * x8 + B9 * x9 + B10 * x10 + .. and see how the rankings change. represented by the “B” symbol. multiply the raw values and coefficients from variables that are statistically relevant.. However.com. Add up these weighted variable values to produce a country’s wellbeing and income scores in each sub-index. Additionally. For each country.. for more details on how the scores are calculated for each sub-index... Some variables will be relevant to income and others to wellbeing. While different foundations are likely to matter more for countries in different regions or income levels. For each country 2. 23 . on our website at www. The diagram below illustrates how we go from identifying a factor of prosperity to determining a country’s performance in a sub-index. Sub-Index Score 4.

some countries in the Middle East and Latin America. taking account of the latest findings in this growing area of research. As a result. The other changes we made in this year’s Index concern applying more rigorous standards for data coverage. In the 2010 sub-index.prosperity.com. 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. the rankings change very little. It shows the shifts that result from absolute changes in country performance. The Governance and Democratic Institutions sub-indexes from 2009 have now been merged into one sub-index. These two sets of rankings have a correlation of 94%. each sub-index now includes two regressions. The graph to the right shows the correlation between the original 2009 and the new 2010 Index rankings. we have been able to include new data that measures these two aspects of prosperity. This meant that we had to exclude variables on rates of group membership. For a complete description of the changes we have made to the Index methodology. it is perhaps surprising that with the exception of a few countries. have undergone large shifts in rankings from 2009 to 2010. we have recalculated the 2009 rankings according to the 2010 methodology to produce accurate comparisons. This is mainly due to significant changes in the Social Capital and Entrepreneurship & Opportunity (E&O) sub-indexes. This is because in 2010. which were important measures of strengths of social networks. 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.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. Therefore. we are continuing to search for variables that will capture the important aspects of social capital that are currently missing from the sub-index. while several countries in the Middle East increased in their rankings. comparing the 2010 Index to the original 2009 version does not produce an ‘apples to apples’ comparison. As a result of these changes.com . and our inclusion of both income and wellbeing analyses in each sub-index. countries like India that performed well on membership variables suffered a large decrease in their social capital ranking. As a result. The chart on page 43 provides an ‘apples to apples’ comparison between 2009 and 2010. Conversely. Because of this year’s changes. which used to be the Entrepreneurship & Innovation sub-index. This subindex now includes measures of social mobility and access to opportunity. Meanwhile. it still measures countries on elements that are central to social capital.prosperity. and exploring new venues of analysis that have become possible as data availability expands. While the 2010 Social Capital sub-index has a more limited scope. has expanded in scope. more refined methods for determining the significance of each variable. 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. and specific ones like India and China. the E&O sub-index. 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. please refer to the full Prosperity Index Report at www. That being said. In light of the extent of the changes. we decided to only include variables for which there was data available for more than 80% of Index countries.

such as Burma’s or Cuba’s. education. and Suriname are included in the Gallup World Poll. Other countries may be covered by the Gallup World Poll but are not in other data sets essential to the Index. Samoa. thereby expanding country coverage from 104 in 2009 to 110 in 2010. Serbia. and to make information on its economic. Countries as diverse as Somalia. totalitarian nation such as North Korea does not permit Gallup to survey its citizens. we cannot include countries that Gallup doesn’t cover.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. some governments. social. the Prosperity Index includes a lot of data: 89 variables drawn from 12 different data sources. One sign of an open. but are not covered by enough other data sources to meet the threshold for ranking in the Prosperity Index. Syria. and health data. Yet. Iceland. we have been able to find sufficient data on six additional countries. For example. Rwanda. Why? The answer is straightforward: there is not sufficient data available on that country. and political conditions available in a transparent and objective manner. effective government is a willingness to allow its citizens to express their opinions freely. This year. Ethiopia. Lithuania. Moreover. which covers 155 countries. Our hope and long-term goal remains to build an index that includes every single country in the world. and Uganda. place restrictions on the types of questions that Gallup may ask since they prohibit their citizens from expressing opinions about government. Because our research has found that prosperity encompasses a tremendous array of factors. 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. such as those providing economic. we cannot include all countries. Sometimes this reflects a government’s unwillingness or inability to collect or make available the needed data. a closed. governance. as we rely upon survey data from the Gallup World Poll. 25 .

prosperity. descriptions of the sub-index. 26 www. and a table listing the variables that we used.com . we have provided rankings of the top and bottom 10 countries.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. for each sub-index.

Income and wellbeing bar sizes are not comparable due to differences in scale 27 . foundation for growth. innovative high-tech exports. The Economy sub-index measures countries’ performances in four areas that are essential to promoting prosperity: macroeconomic policies. such as robust domestic savings rates. economic satisfaction and expectations. and financial sector efficiency. and a competitive economy that facilitates domestic demand and attracts foreign investment are essential to boosting per capital income. the variables in the sub-index are categorised into these areas. Variables have been divided into different categories within each sub-index. and an efficient financial sector have a positive impact on both average levels of income and wellbeing. As illustrated in the chart below. low rates of inflation and unemployment. The sub-index demonstrates that outcomes of sound macroeconomic policies. Indicates a variable that is included in only one regression. While our research shows that increased economic strength over time is generally good for everyone. It also shows that investing in physical capital per worker. 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. Variables are ordered from largest to smallest within each category. 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. 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.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.

As illustrated in the chart below. The E&O sub-index builds upon scholarship that shows how entrepreneurship drives innovation and leads to economic growth. Lastly. The sub-index also assesses a country’s ability to commercialise innovation. and access to opportunity. 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. and when individuals experience the satisfaction that comes from earning their success. Income and wellbeing bar sizes are not comparable due to differences in scale 28 www.com . Variables have been divided into different categories within each sub-index. 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. It also uses research demonstrating the positive impact of an individual realising his or her entrepreneurial potential. as well as the Information and Communication Technology (ICT) infrastructure that exists to enable productive commercial endeavours. Variables are ordered from largest to smallest within each category.prosperity. Indicates a variable that is included in only one regression. innovative activity. Specifically. When a country increases the likelihood that entrepreneurial activity will pay off. a society’s prosperity increases overall. the variables in the sub-index are categorised into these areas.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. the Entrepreneurship & Opportunity (E&O) sub-index measures countries’ performance in three areas: entrepreneurial environment. 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.

The sub-index shows that citizens prefer governments that are stable and accountable. As illustrated in the chart below. fair. Academic research has found that in general. fair elections and political participation. Income and wellbeing bar sizes are not comparable due to differences in scale 29 . Variables are ordered from largest to smallest within each category. leading to higher levels of life satisfaction among citizens. the variables in the sub-index are categorised into these areas. strength of institutions. and the military. The Governance sub-index measures levels of competition and corruption in the government. The Governance sub-index measures countries’ performance in three areas: effective and accountable government. 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. and regulatory quality are significant contributors to economic growth. 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. Variables have been divided into different categories within each sub-index. the judicial system. and accountable governments also increase public confidence. leading to higher levels of income and wellbeing. political freedom. the opportunity to have a voice in their government is correlated with happier citizens. Likewise. and rule of law. Effective. Stable and democratic governing institutions protect political and economic liberty and create an environment of civic participation. and citizens’ confidence in elections.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.

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. As illustrated in the chart below. research shows that basic education enhances people’s chances in increasing their satisfaction with life. While the relationship between higher levels of education and wellbeing is less clear-cut. which is measured by the average levels of education in the workforce. Indicates a variable that is included in only one regression. the sub-index uses both objective and subjective variables to assess the quality of education in a given country. as well as measures of citizens’ perception of education. to assess quality. Global data on education is limited and. Because of the importance of citizen’s own perceptions of the educational opportunity available to them. 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. Variables are ordered from largest to smallest within each category. Variables have been divided into different categories within each sub-index. the variables in the sub-index are categorised into these areas. allows citizens to develop their potential and contribute productively to their society. it shows that human capital stock. The Education sub-index measures countries’ performance in three areas: access to education. 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. and human capital. The Education sub-index demonstrates how access to education. is essential for promoting private sector research and development as well as producing useful knowledge for a society.com . Income and wellbeing bar sizes are not comparable due to differences in scale 30 www. In addition. making a case for the non-diminishing effect of education on rising GDP levels. quality of education. therefore. This sub-index is built on research on economic growth that has found human capital to be an engine for growth.prosperity.

rates of infant mortality and undernourishment. as this fosters strong human capital that leads to productive aggregate economic output. The Health sub-index assesses countries by outcomes that are made possible by a strong health infrastructure. Self-reported wellbeing and self-reported health are commonly found by researchers to be strongly and significantly correlated to a overall society’s health. The Health subindex measures countries’ performance in three areas: basic health outcomes. health infrastructure and preventative care. and physical and mental health satisfaction. Mentally and physically healthy citizens are the bedrock of a productive workforce. which in turn leads to higher levels of income per capita. such as rates of immunisation against diseases and public health expenditure. As illustrated in the chart below. Income and wellbeing bar sizes are not comparable due to differences in scale 31 .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. 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. the variables in the sub-index are categorised into these areas. Indicates a variable that is included in only one regression. 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. The sub-index also includes measures of satisfaction with personal health and the health effects of environmental factors such as water and air quality.

as well as general crime and mistrust stemming from a lack of social cohesion. When people and basic institutions are unsafe and unstable. then capital. 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. In addition. In addition. Variables are ordered from largest to smallest within each category. Scholars have shown that organised political violence such as riots.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. the variables in the sub-index are categorised into these areas. impede economic growth.prosperity. Stable economic environments are necessary for attracting investment and sustaining economic growth. Stability resulting from national security. coups. Variables have been divided into different categories within each sub-index. when citizens worry about their personal safety or whether they will suffer for freely expressing their opinions. The Safety and Security sub-index combines objective measures of security with subjective survey responses about personal safety. the ability to express political opinions without fear of persecution. The Safety and Security sub-index measures countries’ performance in two areas: national security and personal safety. and civil war. conditions that produce fear and uncertainty negatively affect life satisfaction. Income and wellbeing bar sizes are not comparable due to differences in scale 32 www.com . is a key element in increasing per capita GDP in a country. As illustrated in the chart below. and feeling safe walking alone at night. their overall wellbeing is diminished. investment. for example. and people begin to flee. Similarly. Indicates a variable that is included in only one regression. are positively correlated with higher levels of wellbeing.

The Personal Freedom sub-index assesses the effects of freedom of choice. expression. Income and wellbeing bar sizes are not comparable due to differences in scale 33 . It also assesses how the levels of tolerance for both minorities and immigrants affect countries’ economic growth and citizen satisfaction. organisation. belief. have been shown to experience increases in levels of satisfaction among their citizens. A strong empirical link exists between individuals’ freedom to choose what to do. their country enjoys higher levels of income and social wellbeing. Variables have been divided into different categories within each sub-index. and personal autonomy in a society welcoming of diversity. and the overall satisfaction people enjoy within that society. 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. where to go. As illustrated in the chart below. belief. and overall life satisfaction. Indicates a variable that is included in only one regression. There is also a strong link between the levels of tolerance within a society for ethnic. cultural. When citizens’ personal liberties are protected. what to believe. The Personal Freedom sub-index measures countries’ performance in two areas: individual freedom and social tolerance.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. a nation also enjoys higher levels of economic growth. Societies that strengthen civil rights and freedoms through democratisation. Variables are ordered from largest to smallest within each category. and religious diversity. and movement on a country’s per capital GDP and the subjective wellbeing of its citizens. the variables in the sub-index are categorised into these areas.

the variables in the sub-index are categorised into these areas. The Social Capital sub-index measures countries’ performances in two areas: social cohesion and engagement. Religious communities are also an important element in the creation of social capital. as well as community and family networks. Variables have been divided into different categories within each sub-index. family and community ties.com . 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. Variables are ordered from largest to smallest within each category. Income and wellbeing bar sizes are not comparable due to differences in scale 34 www. The sub-index also evaluates the levels of trust in a society and the manner in which citizens believe they can rely on others. and it assesses how marriage and religiosity provide support networks that improve wellbeing. helping strangers. As illustrated in the chart below.prosperity. and membership within civic groups. Empirical studies on the impact of social capital have shown that citizen wellbeing is improved through social trust.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 use of the term “capital” in “social capital” reflects an important reality: social networks are an asset that produces economic and wellbeing returns. This sub-index assesses how factors like volunteering. Indicates a variable that is included in only one regression. And societies with lower levels of social capital have been shown to experience lower levels of economic growth. and donating to charitable organisations impacts the economic and life satisfaction of the populace as a whole.

they will be best attained when all persons alike share in government to the utmost.“If liberty and equality. as is thought by some.” Aristotle . are chiefly to be found in democracy.

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. we have provided a list of rankings of the countries in the region. 36 www.prosperity. and an analysis of general trends in prosperity for that area.com .

Costa Rica. followed by a series of unevenly developed middle and low-income countries. Personal freedom in Uruguay is almost as high as levels reported in the United States. are generally above the overall Prosperity score for most countries in the Americas. North America is followed – with a substantial gap – by a number of mid-ranked countries. the Americas are highly diverse with prosperity rankings ranging from Canada at seventh place to Nicaragua at 87th. Most markedly. are generally below the overall Prosperity score for most countries in the Americas. and Argentina. the least prosperous Latin American countries – Honduras and Nicaragua – went down in the rankings significantly relative to 2009. mainly due to worsening levels of governance and social capital. Conversely. such as Uruguay. The two leading countries of North America have very strong and stable scores on all sub-indexes. The green dots. Latin American countries face a diverse spectrum of challenges and each country has a unique path towards prosperity. 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 . Chile.Regional Analyses Regional Analysis: The Americas In terms of prosperity. which represent the Personal Freedom scores. in general. most countries suffer from weak governance that brings down their levels of prosperity. which represent the Governance scores. However. The region comprises two of the world’s wealthiest economies – the United States and Canada. 1 0 -1 Argentina’s Governance Score. 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. 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). The red dots. 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.

spread throughout the 2010 Prosperity Index rankings. Nepal. The top of the list is dominated by Australia and New Zealand. and pink dots on the graph below). While there have been both increases and decreases in prosperity in the region. While there is no one-fix solution to raising prosperity in this region. South. Bangladesh. Southeast.2010 Legatum Prosperity Index™ Regional Analysis: Asia-Pacific Region The Asia-Pacific region covers a great variety of countries. and Central Asian countries have relatively low levels of entrepreneurship and opportunity. Prosperity in East. red. and other “Asian tigers. Economy Score Personal Freedom Score Entrepreneurship & Opportunity Score Prosperity Index Score 38 www. it is clear that fostering a better entrepreneurial culture will benefit many of the lower ranking countries. there are different challenges that the sub-regions face in developing prosperous societies. In East Asian countries. followed by Singapore. their relative position in the global ranking. South. but there are no other general trends that are characteristic of most of the region.” such as Hong Kong.prosperity.com . In contrast. citizens’ personal freedom is often hampered by societal pressures. which are represented in the red dots. which are bringing down the sub-region’s overall prosperity (see the difference between the green. or even improved. and Pakistan share their ranks with some of the Sub-Saharan African countries. Taiwan. As one would expect. and Korea. While East Asian countries generally score well above global averages. but the region suffers from low levels of entrepreneurship and opportunity. 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 Southeast Asia is raised by relatively strong performing economies. In the bottom tier. but higher levels of entrepreneurship and opportunity raise the sub-region’s prosperity. relatively low levels of personal freedom in the region brings prosperity down for most countries. the best-performing countries of Asia and the Pacific have preserved. Japan. Cambodia.

followed by a number of other countries of Northern and Western Europe. This means good overall governance is what commonly raises levels of prosperity in North/Western Europe. and Finland. Generally. While the Nordic states and the countries of North-Western Europe occupy top places in the rankings. However. education. while challenges with governance brings Eastern European prosperity down. 39 . but there are signs of hope: countries with a lower overall score perform relatively well on health. with the former generally performing better than the latter. 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). suggesting that these three areas might represent the most important assets for the transitional nations of Eastern Europe. Denmark. 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. and safety. there is a clear divergence between Western and Eastern Europe. Eastern European countries have a lot of similarities in terms of what makes them prosperous and the challenges they face. The main difference is that Western Europe benefits from good governance. the other European nations are more varied in terms of what make them prosperous. The Central and Eastern European countries and Southern European nations are then scattered in the lower tiers of the ranking. these countries have weaker governance and social capital.Regional Analyses Regional Analysis: Europe The top three places in the 2010 Prosperity Index ranking are occupied by Nordic countries: Norway.

com . but this is likely due to the fact that non-Arab expatriates. 0 -1 -2 The red dots. where it is followed only by Egypt and Pakistan. -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. 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. which represents the overall Prosperity scores. the Middle East and North Africa (MENA) are characterised by relatively strong performances in the Health and Economy sub-indexes. raising the levels of prosperity in the region. has solidly mid-range scores on Health and Education sub-indexes. but that is offset by an extremely low ranking of 108 on the Personal Freedom sub-index. which represent the Personal Freedom scores for MENA countries generally fall below the black line. However. Overall. 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.prosperity.2010 Legatum Prosperity Index™ Regional Analysis: Middle East and North Africa In general. were not allowed to be surveyed in these countries. which represents the overall Prosperity scores. which represent Health and Economy scores for MENA countries are generally above 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. who make up half of the UAE population and one-fifth of the Kuwaiti population. Iran. The United Arab Emirates (UAE) and Kuwait have the highest levels of personal freedom in the region.

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. 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. 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. Citizens in Sub-Saharan Africa tend to enjoy relatively high levels of personal freedom.) Finally. as well as the global average performance). which are in the neighbourhood of middle-income countries like Mexico. In terms of regional trends. poor health and education brings overall prosperity down in the region. unlike the rest of Sub-Saharan Africa. -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 . they may pave a path towards prosperity for other African nations. this region shows that social capital and good governance can act as substitutes. These three countries. which represents the overall Prosperity scores. But the picture isn’t entirely pessimistic. which represent the Education and Health scores for Sub-Saharan countries generally fall below the black line. and Namibia. or Indonesia. with most of them ranking in the bottom 15. suggesting that by example. South Africa. which represents the overall Prosperity Index scores. levels are above the global average. are continuing their ascent in the overall ranking. Russia. (See how the green dots are above the black line.Regional Analyses Regional Analysis: Sub-Saharan Africa Most Sub-Saharan African countries are among the worst-performing in the world. and in some countries. The exceptions to this are Botswana.

com . as well as the number of places that countries have moved up or down. please see page 24.2010 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. 42 www. The methods for determining the rankings in 2010 have changed since the 2009 edition.prosperity. For a full description of why and how we altered our methods this year. so that we can compare ‘apples to apples’. The chart on the right uses the 2010 methodology to reproduce rankings for 2009.

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 .

Finally. All Rights Reserved. Brookings Institution Robert Jensen. American Enterprise Institute Thomas Mahnken. Duke University Carol Graham.aei. critiques. Legatum Institute also wishes to thank the American Enterprise Institute (www. an independent consultancy that has for 30 years provided authoritative analysis of geopolitical events.com). 44 www. and suggestions. Legatum Institute recognises Oxford Analytica (www.com) wishes to thank the members of the Academic Advisory Panel for their helpful advice. Los Angeles Stephen Krasner. for permission to use the Gallup World Poll Service© and Gallup World Poll Data in construction of the Prosperity Index. Copyright Gallup 2010. San Diego Ann Owen. Tufts University Peter Feaver. School of Advanced International Studies Edmund Malesky. Terry Babcock-Lumish. Johns Hopkins.prosperity.com . Harvard University Thomas Sander. Legatum Institute assumes full responsibility for the content of the Prosperity Index. Stanford University Michael Kremer. University of California. University of Michigan Erik Wibbels.2010 Legatum Prosperity Index™ Legatum Prosperity Index Academic Advisory Panel ™ Legatum Institute (www. Oxford University Daniel Drezner. Harvard University Allan Stam.li. Harvard University Phil Levy. Duke University Legatum Institute also wishes to thank Gallup.oxan. University of California. Participation in the Academic Advisory Panel does not imply endorsement of every aspect of the Prosperity Index. Inc. Hamilton College Robert Putnam.org) for their assistance and guidance in helping develop the Index methodology. for its assistance in compiling and analysing the Prosperity Index data.

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