Thought Leadership

CFS 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 2011-2012 and Center for Financial Stability Inc.

CFS Rule of Law Index (RLI) Ranks

Table shows ranks out of 142 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
New Zealand 9 15 20 4 7 1
Singapore 2 3 1 1 5 2
Hong Kong SAR 10 6 3 5 31 3
Malaysia 13 28 8 17 9 4
Ireland 38 10 59 37 81 5
Colombia 69 87 100 88 66 5
Canada 15 9 48 10 4 5
United States 33 39 58 36 26 5
South Africa 34 30 112 16 2 10
United Kingdom 25 8 83 13 11 10
Thailand 57 108 45 53 68 12
Japan 32 20 73 28 24 16
Belgium 49 27 127 51 25 16
Norway 23 13 70 6 8 20
Slovenia 82 60 94 111 126 20
Peru 77 89 119 107 51 20
Chile 31 42 35 26 23 28
Sweden 12 5 26 2 1 28
Poland 78 54 124 97 79 36
Portugal 91 48 128 131 112 36
Indonesia 61 84 44 69 73 36
India 69 69 96 64 80 36
Mexico 80 80 102 101 83 36
Turkey 76 72 93 66 104 47
Finland 14 1 11 3 6 47
Estonia 37 29 14 40 55 47
Australia 32 23 75 14 3 47
Italy 102 71 140 133 120 47
Brazil 77 59 142 75 49 60
Korea, Rep. 87 53 117 84 119 60
Taiwan, China 36 14 30 44 34 60
France 46 11 116 22 22 60
Germany 44 18 88 19 17 77
China 52 41 21 42 77 77
Czech Republic 90 78 120 113 60 77
Spain 80 44 110 73 97 77
Russian Federation 117 130 132 123 123 77
Slovak Republic 98 79 115 139 64 93
Ukraine 121 137 130 138 106 93
Argentina 118 133 131 124 110 93
Netherlands 37 16 51 9 14 93
Hungary 92 66 135 91 69 100
Austria 42 12 49 18 20 111
Philippines 102 105 126 115 52 111
Ecuador 114 123 97 135 105 111
Greece 114 56 133 121 134 125
Switzerland 33 2 17 7 10 131
Venezuela 137 142 138 142 125 139

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

2The Global Competitiveness Report 2011-2012

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 2011-2012

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 2011-2012

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 2011-2012

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 2011-2012

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 2011-2012 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 2011-2012 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 2011-2012 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 2011-2012 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 2011-2012 and Center for Financial Stability Inc.