The Global Index of Economic Openness Methodology Report

The Legatum Institute’s mission is to create the pathways from poverty to prosperity, and our work is focused on understanding how prosperity is created. To that end, with the generous support of the Templeton World Charitable Foundation, we have created a Global Index of Economic Openness to rank countries’ ability to interact with, and benefit from, both domestic and international commerce

A report for the Global Index of Economic Openness programme by Stephen Brien

Published 16 May 2019

A report published by the Legatum Institute
in partnership with Templeton World Charity Foundation

The Legatum Institute’s mission is to create the pathways from poverty to prosperity, and our work is focused on understanding how prosperity is created. To that end, with the generous support of the Templeton World Charitable Foundation, we have created a Global Index of Economic Openness to rank countries’ ability to interact with, and benefit from, both domestic and international commerce.

The intent has been to focus on the broad patterns of success that differentiate the economic success of countries as distinct as the United States of America, Angola, Azerbaijan, and Saudi Arabia.

Over the past year, the Legatum Institute has worked with dozens of experts from around the world to develop the Global Index of Economic Openness, covering 157 countries.

There are many global indexes that seek to capture individual elements of economic and social success (for example, the World Bank Doing Business Index, the World Bank Global Governance Index, the World Economic Forum Global Competitiveness Index, the World Economic Forum Enabling Trade Index, and World Trade Organization measures of tariff and non-tariff barriers, etc.).

The aim of this Global Index of Economic Openness is to draw these disparate elements into a more holistic perspective across the whole of an economy.

Pillars of Economic Openness Measurements of economic impact from different aspects of open economies have been the subject of extensive investigation. In constructing the Global Index of Economic Openness, we first reviewed the academic literature on the major drivers of productivity. Based on the structure of existing global indexes, and the existing literature, we organised the elements of Economic Openness into four pillars:

  • Market Access and Infrastructure, which measures how easy it is for products and services to be produced and delivered to customers;
  • Investment Environment, which measures the availability of domestic and foreign sources of finance;
  • Enterprise Conditions, which examines how contestable and free from burdensome regulation markets are;
  • Governance, which encompasses the rule of law, as well as government integrity and effectiveness

Elements of Economic Openness

We then worked with over forty academics from around the world, with political economy, trade, finance, and entrepreneurship expertise, to develop an appropriate taxonomy of discrete elements that drive economic success within each of those four major pillars. Over multiple iterations in hundreds of hours of meetings with these experts, we discussed these concepts and how to measure the performance of countries with respect to them.

The result is a set of 22 distinct elements, organised under the four pillars. They are summarised in the following Methodology Report.

These elements capture the underlying structure of our definition of Economic Openness. They are descriptions of the specific policy areas that a government can use. For example, a government looking to improve its Investment Environment has five elements, or key policy areas, that it can change.

The relative importance of each of these elements is different, which is why we give each element discrete weightings within a pillar. Those weights reflect how important the element is to improving Economic Openness. The process of weighting is described in more detail in the Methodology report below.

Download

The Global Index of Economic Openness Methodology Report:

A report published by the Legatum Institute
in partnership with Templeton World Charity Foundation

By Stephen Brien

May 2019

Download the reportPDF