IPRI 2016: Development

VII.     IPRI and Development

 

Since those early stages of modernity when the idea of progress became a goal, nations began to promote economic growth to achieve development. But development is a much wider concept, a multidimensional one, addressing economic, political, social, cultural, technological and ecological spheres, looking for the well-being of present and future generations. Having examined the important interactions between property rights and development, we analyzed in this edition some different dimensions of development with the IPRI and its components, as follows:

·       Economic Outcomes

·       Human Capabilities

·       Social Capital

·       Research and Innovation

·       Ecological Performance

 

VII.1.  Economic Outcomes

 

Trying to grasp development, economic outcomes obviously do not capture everything and many other factors are likely to influence it, however it is a first approach to it. Four (4) economic elements were evaluated with the IPRI and its components:

·       Production: using the Gross Domestic Product (GDP) in constant USD in per capita terms, and also adjusted by the GINI coefficient. GDP is the sum of gross value added by all resident producers in the economy plus any product taxes and minus any subsidies not included in the value of the products. It is calculated without making deductions for depreciation of fabricated assets or for depletion and degradation of natural resources. (Source: World Bank data, http://wdi.worldbank.org)

·       Domestic Investment: using the Gross Capital Formation in current per capita terms, which consists of outlays on additions to the fixed assets of the economy plus net changes in the level of inventories (Source: World Bank data, http://wdi.worldbank.org)

·       The composition of production: using the Index by the Atlas of Economic Complexity. The complexity of an economy is related to the multiplicity of useful knowledge embedded in it. We can measure economic complexity by the mix of products that countries are able to make. (http://atlas.media.mit.edu/en/resources/economic_complexity/).

·       The entrepreneurship ecosystem: using the Global Entrepreneurship Index of the GEDI that measures the health of the entrepreneurship ecosystems in countries. It then ranks the performance of these against each other; providing a picture of how each country performs in both the domestic and international context. (Source: http://thegedi.org/global-entrepreneurship-and-development-index/)

Most of the correlations[4] found were significant and positively strong. We considered: medium correlation if Pearson ranges [0.5-0.6), high correlation if it ranges [0.6-0.8) and strong correlation if it ranges [0.8-1). See Table 8.

It is worth noting that GDP per capita correlations increased when it was adjusted by the GINI Coefficient, which is a measure of dispersion or inequality, giving to the GDP per capita a more adjusted measure in each country. The highest correlation was found for the IPRI and the adjusted GDP per capita (0.851). For the LP and PPR component the correlation was higher not adjusting the GDP per capita by the GINI coefficient, while IPR component followed the same behavior as that of the IPRI. Figures 19a and 19b show the best fit curve for the IPRI and its components with each economic variable and the coefficients of determination[5] (R2).
 

Table 8. Pearson Correlation Indexes

 

 

GDP per capita (constant 2005 USD)

GDP per capita (constant 2005 USD) * GINI

Gross capital formation (current USDper capita)

Economic Complexity

Global Entrepreneurship

IPRI

0.836

0.851

0.778

0.722

0.855

LP

0.829

0.834

0.761

0.691

0.845

PPR

0.653

0.619

0.667

0.558

0.725

IPR

0.807

0.844

0.722

0.737

0.800

 

The relationship with domestic investments, showed for the IPRI a Pearson correlation of 0.778 followed by the LP (0.761), the IPR (0.722) and the PPR (0.667) component.

The characteristics or composition of the domestic production exhibited also a high correlation with the IPRI, being the strongest the correlation with IPR (0.737), followed by the IPRI (0.722), the LP (0.691) and the PPR (0.558) component.

Of all the items, the entrepreneurial environment presented the stronger correlation with the IPRI (0.855), followed by the LP (0.845), the IPR (0.845) and the PPR (0.725) component. This is a very important finding, as entrepreneurship is the building block of innovation, investment, production and economic growth.

Figure 20 shows that, on average, countries in the top quintile of IPRI scores (i.e. top 20%) show a per capita income almost 21 times that of the countries in the bottom quintile (in 2015 that disparity was almost 24 times). Statistics are based on the averages of IPRI-2016 scores and corresponding data on average GDP per capita in USD constant terms (2005=100, source: World Bank data) for the last available year.

 

 

Figure 19a. IPRI Correlations with economic variables

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Figure 19b. IPRI components correlations with economic variables

 

Figure 20: Average per capita Income by IPRI Quintiles

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These results insist in the significant and positive relationship between prosperity and a property rights system, measured at an individual level. The statistical dispersion of the GDP distribution in each country was considered in this analysis using the GINI coefficient, which improved the correlations.

Figure 19a displays the relationship IPRI-economic outcomes showing countries with a demographic perspective. This insists in the huge proportion of population (represented by the radio of each circle) living in countries of middle level of IPRI and low to mid economic outcomes.

 

VII.2.  Human Capabilities

 

The focal element of the development equation is the people, and therefore their capabilities. In this area, two (2) elements were evaluated:

·       Human Development Index (UNDP, http://hdr.undp.org/en/data) which has three dimensions: long and healthy life, being knowledgeable and a decent standard of living.

·       Global Index on Freedom of Education, which includes a set of data on an international scale, analyzing the protection and promotion of this fundamental human right, as well as policies in support of freedom of education in the national context and in other countries. The indicators will focus on: freedom of choice for children's education (constitutional and legislative previsions, public schools, home schooling); public support for freedom of education (family vouchers, direct support for schools, teachers' wages, costs of structures and buildings etc.); NET (Net Enrolment Rate): the participation rate in a certain stage of children's and young people's education; Rate of students' participation in comprehensive schools (http://www.novaeterrae.eu/en/). 

The correlations found were significant and positive. The HDI showed higher correlations than the GIFE; and while the first is higher for LP (0.734) and followed by the IPRI (0.720), the GIFE is higher for IPR (0.605), as creative capabilities will be enhanced by the enjoyment of freedoms and for guarantees on intellectual property rights. See Table 9. The best fit curve for the indices and the coefficient of determinations are shown in Figure 22.

Table 9. Pearson Correlation Indexes

 

Freedom of Education

Human Development Index

IPRI

0.591

0.720

LP

0.579

0.734

PPR

0.424

0.616

IPR

0.605

0.638

 

 

Figure 22. IPRI Correlations with human capabilities variables

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VII.3.  Social Capital

 

Social capital is understood as the group of norms and bonds that allow collective social action. Social capital is built upon trust, reciprocity, cooperation, assistance, support, interdependence, interaction, dialogue, involvement and participation (Jaffé, Levy-Carciente & Zanoni, 2007). Given the importance of having people as the axis around which the development concept and policies should rotate, we tried to grasp the social capital of the countries using a group of variables from the International Institute of Social Studies (http://www.indsocdev.org) and the Social Capital sub-index of the Prosperity Index by Legatum (http://www.li.com). We evaluated their correlation with the IPRI and its components (see Table 10 and Figure 23):

·       Inclusion of minorities: measures levels of discrimination against vulnerable groups such as indigenous peoples, migrants, refugees, or lower caste groups. This measure focuses upon whether there is systemic bias among managers, administrators, and members of the community in the allocation of jobs, benefits, and other social and economic resources regarding particular social groups.

·       Civic activism: refers to the social norms, organizations, and practices which facilitate greater citizen involvement in public policies and decisions. These include access to civic associations, participation in the media, and the means to participate in civic activities such as nonviolent demonstration or petition.

·       Intergroup cohesion: refers to relations of cooperation and respect between identity groups in a society. Where this cooperation breaks down, there is the potential for conflictual acts such as ethnically or religiously motivated killing, targeted assassination and kidnapping, acts of terror such as public bombings or shootings, or riots involving grievous bodily harm to citizens, with concomitant effects upon growth and development.

·       Interpersonal safety and trust: Interpersonal norms of trust and security exist to the extent that individuals in a society feel they can rely on those whom they have not met before. Where this is the case, the costs of social organization and collective action are reduced. Where these norms do not exist or have been eroded over time, it becomes more difficult for individuals to form group associations, undertake an enterprise, and live safely and securely

·       Social Capital component of the Prosperity Index by Legatum: this sub-index measures countries’ performance in two areas: social cohesion and engagement, and community and family networks. Variables: perceptions of social support, volunteering rates, helping, strangers, charitable donations, social trust, marriage and religious attendance.

The strongest correlations were found between Civic Activism and the IPRI (0.824) followed by the IPR (0.813) and the LP (0.801). Inclusion, Intergroup Cohesion and Interpersonal Safety & Trust were highly correlated, especially with IPRI and LP. The Social Capital component of the Prosperity Index by Legatum showed high correlations with the IPRI (0.770), the IPR (0.738), the LP (0.729) and the PPR (0.675) component.

 

Table 10. Pearson Correlation Indexes

 

Inclusion

Civic Activism

Intergroup Cohesion

Interpersonal Safety & Trust

Social Capital Comp. (Legatum)

IPRI

0.698

0.824

0.608

0.667

0.770

LP

0.732

0.801

0.649

0.702

0.729

PPR

0.507

0.656

0.493

0.579

0.675

IPR

0.664

0.813

0.527

0.570

0.738

 

Figure 23. IPRI Correlations with social capital variables

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VII.4.  Research and Innovation

 

Recognizing the importance of innovation in a knowledge society, using World Bank data for research and innovation (http://wdi.worldbank.org/) we run correlations of the IPRI and its component with three (3) items:

·       Full time research projects per million people: Reflects the professionals engaged in the conception or creation of new knowledge, products, processes, methods, or systems and in the management of the projects concerned. Postgraduate PhD students (ISCED97 level 6) engaged in R&D are included (http://data.worldbank.org/indicator/SP.POP.SCIE.RD.P6).

·       Research and development expenditure as a percentage of GDP: Expenditures for R&D are current and capital expenditures (both public and private) on creative work undertaken systematically to increase knowledge, including knowledge of humanity, culture, and society, and the use of knowledge for new applications. R&D covers basic research, applied research, and experimental development (http://data.worldbank.org/indicator/GB.XPD.RSDV.GD.ZS).

·       Scientific and technical journal articles: Number of scientific and engineering articles published in the following fields: physics, biology, chemistry, mathematics, clinical medicine, biomedical research, engineering and technology, and earth and space sciences (http://data.worldbank.org/indicator/IP.JRN.ARTC.SC).

The highest correlations were found between numbers of full time researches and IPR (0.786), followed by the IPRI (0.764) and LP (0.751). The next highest correlation was between R&D expenditure and the IPR (0.743), followed by the IPRI (0.677) and LP (0.638).  Though positive, PPR showed moderate correlations. The number of published scientific papers showed positive but weak to moderate correlations.

 

Table 11. Pearson Correlation Indexes

 

Full time researches (per 106)

R & D expenditure

(% GDP)

Scientific & technical journal articles

IPRI

0.764

0.677

0.315

LP

0.751

0.638

0.251

PPR

0.540

0.426

0.240

IPR

0.786

0.743

0.374

 

 

Figure 23. IPRI Correlations with R&D variables [DOWNLOAD THE FULL PDF TO VIEW THIS CHART]

 

 

VII.5.  Ecological performance

The ecological environment is critical for sustainable development, and a part of the recent international climate change agreement in Paris. For this metric we ran correlations of the IPRI and the EPI-Yale:

·       The Environmental Performance Index (EPI-Yale) provides a global view of environmental performance and country by country metrics to inform decision-making. It ranks countries' performance on high-priority environmental issues in two areas: protection of human health and protection of ecosystems (http://epi.yale.edu/country-rankings). See Table 12 & Fig. 24.

Table 12. Pearson Correlation Indexes 

 

EPI-Yale

IPRI

0.638

LP

0.644

PPR

0.553

IPR

0.568

 

 

We found positive correlations among the EPI and IPRI and its components. The same result can be found at: http://marketmonetarist.com/2015/12/01/coase-was-right-the-one-graph-version/, it follows that well defined property rights are the best way to manage economic externalities. Usually, these results may indicate the extent to which society has stronger property rights; eventually it will be able to apply appropriate policies protecting health and the environment through the conservation and protection of the ecosystem.

Figure 24. IPRI Correlations with ecological measurements

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Top Ranked Countries


These are the countries where property rights are most secure. For a complete list, click here.

Ranks Country Rating
1 FINLAND 8.4
2 NEW ZEALAND 8.3
3 LUXEMBOURG 8.3
4 NORWAY 8.3
5 SWITZERLAND 8.2
6 SINGAPORE 8.1
7 SWEDEN 8.1
8 JAPAN 8.1
9 NETHERLANDS 8.0
10 CANADA 8.0
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