When it comes to determining the wealthiest nations in the world, in most cases, the nation’s Gross Domestic Product (GDP) is a strong determinant factor. But, an examination of a nation’s GDP is not an accurate analysis of a nation’s wealth.
GDP : A flawed economic framework
True prosperity encapsulates more than just the market value of economic activity within a country. Many experts believe that using the Purchasing Power Parity per capita to weigh a country’s economic quality is a flawed means to measure a nation’s success and well-being.
After all, measurement of GDP conflates nuances and complexities that are too important to disregard. Each nation has certain economic actors that cannot simply be defined by the total value of goods produced and services from a nation.
Rather than just assessing a nation’s success and economic health by a single figure, The Legatum Institute, an international think tank and educational charity, measures a country’s wealth and wellbeing across nine pillars of prosperity.
In consideration of this article, we’re examining one of the nine pillars with a meaningful relationship towards economic health: Economic Quality.
Economic Quality: An empirical measure of economic success
Unlike the International Monetary Fund (IMF) which determines a nation’s economic power through their GDP, The Legatum Institute replaces the IMF measurement with the Harvard Economic Complexity Index. This is a more succinct measurement of prosperity as it measures export diversity.
While it considers a nation’s GDP, the Legatum Institute’s Economic Quality Pillar is more multidimensional, basing its final economic score across 12 indicators. This multidimensionality captures a more accurate assessment of a country’s prosperity.
Several key indicators under the Economic Quality Pillar include:
- Macroeconomic indicators
- Foundations for growth
- Economic opportunity
- Financial sector efficiency
- Structural policies
- Economic satisfaction and expectations
- Distribution of prosperity
Each indicator score is averaged and provided a score out of 100 to accurately assess a country’s overall Economic Quality. This enables The Legatum Institute to determine a country’s overall assessment regarding economic wealth and success.
It must be noted that Economic Quality is just one of nine pillars assessed by the Legatum Prosperity Index.
The other eight pillars used to measure a nation’s true prosperity include Business Environment, Governance, Education, Health, Safety & Security, Personal Freedom, Social Capital and Natural Environment.
Each pillar is evenly weighed against the others, providing a comprehensive, reliable guide on how a country is performing on both economic scale and wellbeing.
The 10 wealthiest nations ranked
Key findings in the 2018 Legatum Prosperity Index have provided evidence that global prosperity has been at its highest point ever. Opportunities for wealth creation are flourishing, delivering more prosperity to nations globally.
In fact, of the 149 countries assessed by The Legatum Prosperity Index, 113 countries have seen significant positive growth in their prosperity in the last five years. Such economic improvement has had a significant effect across other pillars on the Prosperity Index, Education, for example.
Below, let’s examine the 10 wealthiest nations as highlighted by the 2018 Legatum Prosperity Index.
In 2014, Ireland’s Economic Quality pillar ranking was in the 25th position.
Five years on, the Emerald Isle has made great strides to improve its country’s ranking. Over the past five years, Ireland has steadily climbed up the ranks, finally breaking into the 10th place in overall Economic Quality this year.
This GCC (Gulf Cooperation Council) country has maintained strong Economic Quality rankings in the past five years.
Since 2014, Bahrain has hovered in the top 10 positions within the Economic Quality rankings. It has only experienced a significant dip in ranking in 2016 Prosperity Index report when it fell three positions to 11th place.
Despite its strong economic success, Bahrain sits in the 51st position in the overall Prosperity Index ranking. This is attributed to its low scores in Personal Freedom and Natural Environment.
Denmark has steadily maintained a top position not in Economic Quality, but across all nine pillars of the Legatum Prosperity Index. These high pillar rankings have positioned Denmark within the top five overall ranking positions on the Legatum Prosperity Index, sitting in 5th place.
As the world’s top-ranked country, Norway has consistently ranked high across all pillar rankings since 2014. While Norway only sits in 7th position in Economic Quality, it’s a top performer in Safety & Security, Social Capital, and Governance.
2018 has been a strong growth year for The Netherlands in terms of Economic Quality. Up until 2018, The Netherlands has remained relatively stable at the Economic Quality front, sitting at the 10th place since 2014.
The 2018 Legatum Prosperity Index saw The Netherlands Economic Quality pillar ranking jump 4 positions its current 6th place rank.
Sweden frequently features in the top 10 overall index scores since the inception of the Legatum Prosperity Index. Strong performances in Economic Quality and Governance has enabled Sweden to maintain a highly covetable top-ranked position.
Its 5th position on the Economic Quality pillar remains unchanged from last year.
Perhaps no other country is as consistent in its individual pillar rankings that Switzerland. Its Economic Quality ranking has remained unchanged for the past five years. The country’s strong position in Economic Quality has propelled it from overall 5th place 2017 to 4th in 2018.
Since the Legatum Prosperity Index first released its findings in 2007, Luxembourg has ranked in the top three positions in Economic Quality. Over the last five years, this small European nation has seen its Economic Quality drop from 2nd position to 3rd, respectively.
Singapore’s open and dynamic economy has allowed this city-state to maintain its strong position in the top two spots in Economic Quality. While it once held the top-ranked position in 2014 to 2016 respectively, it has since dropped to 2nd position in 2017 but remains unchanged in 2018.
For the past five years, this small Nordic country has been significantly improving its Economic Quality position, steadily climbing from a 5th position in 2014 to first place in 2017. Iceland has maintained its strong Economic Quality position, remaining top-ranked in Economic Quality in 2018.
The many facets of economic success
While Economic Quality is a strong indicator of a country’s prosperity and wealth, there are, however, many paths to prosperity.
This article emphasises one of the nine pillars The Legatum Institute uses as a framework to determine how a nation achieves prosperity. When determining true prosperity, though, all pillars must be taken into equal consideration.