Reform priorities for prosperity of nations: The Legatum Index

Abstract

We apply a four-stage methodology (i.e., cluster analysis, data mining, partial least square path modeling, and importance-performance analysis) to identify the critical paths to multi-dimensional prosperity of nations. Using the Legatum Prosperity Index across 142 countries as a proxy for prosperity, we find strong evidence of the positive causal mechanisms among dimensions of prosperity. This implies that individual dimensions of prosperity should not be weighted equally in designing policies that support prosperity of nations. In line with human capital theory, we find that education and the pupil to teacher ratio are the key policy drivers of prosperity enhancement.