Thought Leadership

CFS 2012-2013 Rule of Law Index (RLI)

The strength of sovereign institutions is vital for attracting and maintaining foreign and domestic capital alike. Fragile institutions coupled with faulty fundamentals present a recipe for volatile growth or excessively deep recessions.

Well before the most recent crisis, Larry Summers highlighted three factors imperative for economic growth. They include a nation’s ability to:

  1. “integrate with the global economy through trade and investment,”
  2. “maintain sustainable government finances and sound money,” and
  3. “put in place an institutional environment in which contracts can be enforced and property rights can be established.”1

Sound macro management and trade policy largely accounts for the first two factors cited by Summers. Although complex, many mechanisms exist to assess macro fundamentals.

The power of institutions and the rule of law are more complex to evaluate. However, the World Economic Forum’s Global Competitiveness Index (GCI)2 provides rich detail on 12 “pillars” of competitiveness ranging from institutions to health to innovation, etc. Although the overall GCI index is of interest, details from the survey provide a powerful glimpse into specific structural areas within a nation.

We delve deeper into the many GCI components to create our own country indicator of the power of the “Rule of Law” or RLI (see chart on right). Although education, health, technological readiness, innovation, etc. are critical for individual investments, a more circumscribed evaluation of the rule of law is vital.

As the concept is difficult to measure, we welcome feedback from legal or policy experts.

Source: The Global Competitiveness Report 2012-2013 and Center for Financial Stability Inc.

CFS 2012-2013 Rule of Law Index (RLI) Ranks

Table shows ranks out of 144 countries. Smaller numbers represent high ranks and low risk.

Color Legend  Top 20 (21-40) 102-121 Bottom 20
Option to show all countries:  Sort Table By:

Click on column headers to change sort order.

Average Rank Components
Country Rule of
Law
Index (RLI)
3
Property
Rights
4
Burden of
Government
Regulation
5
Efficiency of
Legal Framework
in Settling
of Disputes
6
Efficacy of
Corporate
Boards
7
Strength of
Investor
Protections
8
Singapore 2 3 1 1 3 2
New Zealand 5 6 14 3 2 1
Hong Kong SAR 10 7 4 6 28 3
Finland 14 1 6 2 9 52
Malaysia 14 28 8 14 14 4
Sweden 16 11 31 5 6 29
Canada 18 8 60 9 8 5
Norway 22 10 65 7 5 24
United Kingdom 23 5 72 11 15 10
Ireland 27 16 46 29 40 5
Netherlands 31 9 34 8 10 94
Chile 32 37 32 23 37 29
Switzerland 32 2 16 4 7 130
Taiwan, China 32 12 10 40 33 65
South Africa 35 26 123 17 1 10
Japan 36 15 87 36 24 17
United States 36 42 76 35 23 5
Estonia 38 35 17 41 43 52
Australia 39 25 96 18 4 52
Germany 40 14 71 20 17 80
Belgium 49 31 133 45 20 17
Austria 50 13 82 25 18 110
France 53 18 126 37 21 65
China 57 47 23 44 91 80
Indonesia 59 82 48 66 62 39
Thailand 65 103 75 65 68 13
India 66 61 98 59 75 39
Turkey 69 57 80 61 96 52
Colombia 75 96 110 97 66 5
Mexico 75 71 97 100 67 39
Brazil 76 51 144 84 38 65
Peru 83 98 128 118 54 17
Spain 84 48 120 69 103 80
Poland 85 63 131 111 80 39
Korea, Rep. 86 52 114 80 121 65
Portugal 88 49 129 121 101 39
Philippines 90 74 108 107 51 110
Slovenia 91 60 124 126 122 24
Czech Republic 92 76 125 115 64 80
Slovak Republic 102 75 132 140 71 94
Italy 107 69 142 139 134 52
Hungary 109 93 138 117 94 101
Ecuador 115 120 101 130 115 110
Argentina 120 135 134 129 107 94
Greece 121 73 141 135 131 125
Russian Federation 121 133 130 124 124 94
Ukraine 123 134 135 141 113 94
Venezuela 140 144 143 144 129 140

1Summers, Lawrence, “Godkin Lectures,” Harvard University, Kennedy School of Government, 2003.

2The Global Competitiveness Report 2012-2013

3Average Rank of Five Components (RLI)
Unweighted average of five components. (CFS)

41.01 Property rights
How would you rate the protection of property rights, including financial assets, in your country? [1 = very weak; 7 = very strong] | 2010–11 weighted average. The Global Competitiveness Report 2012-2013

51.09 Burden of government regulation
How burdensome is it for businesses in your country to comply with governmental administrative requirements (e.g., permits, regulations, reporting)? [1 = extremely burdensome; 7 = not burdensome at all] | 2010–11 weighted average. The Global Competitiveness Report 2012-2013

61.10 Efficiency of legal framework in settling disputes
How efficient is the legal framework in your country for private businesses in settling disputes? [1 = extremely inefficient; 7 = highly efficient] | 2010–11 weighted average. The Global Competitiveness Report 2012-2013

71.19 Efficacy of corporate boards
How would you characterize corporate governance by investors and boards of directors in your country? [1 = management has little accountability to investors and boards; 7 = investors and boards exert strong supervision of management decisions] | 2010–11 weighted average. The Global Competitiveness Report 2012-2013

81.21 Strength of investor protection
Strength of Investor Protection Index on a 0–10 (best) scale | 2010
SOURCE: World Bank/International Finance Corporation, Doing Business 2011: Making a Difference for Entrepreneurs
See section starting page 120

Analysis of the Components of the RLI Index
The order of the countries in each chart is the same for comparison purposes and reflects their Rule of Law Index (RLI) rank. Small numbers reflect a high rank (low risk).

Property Rights

How would you rate the protection of property rights, including financial assets, in your country?
 

Source: The Global Competitiveness Report 2012-2013 and Center for Financial Stability Inc.

Burden of government regulation

How burdensome is it for businesses in your country to comply with governmental administrative requirements (e.g., permits, regulations, reporting)?

Source: The Global Competitiveness Report 2012-2013 and Center for Financial Stability Inc.

Efficiency of legal framework in settling disputes

How efficient is the legal framework in your country for private businesses in settling disputes?

Source: The Global Competitiveness Report 2012-2013 and Center for Financial Stability Inc.

Efficacy of corporate boards
 

How would you characterize corporate governance by investors and boards of directors in your country?

Source: The Global Competitiveness Report 2012-2013 and Center for Financial Stability Inc.

Strength of investor protection

Strength of Investor Protection Index on a 0–10 (best) scale

Source: World Bank/International Finance Corporation, Doing Business 2011: Making a Difference for Entrepreneurs, The Global Competitiveness Report 2012-2013 and Center for Financial Stability Inc.

Archive

See the results from the prior year — CFS 2011-2012 Rule of Law Index.