The Effective Rule of Law Propels Prosperity

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In “Are Property Rights Human Rights?” I wrote:

The Heritage Foundation’s Index of Economic Freedom uses property rights as one of the 10 measurements of a country’s economic freedom. They have found that property rights along with freedom from corruption, together called “the rule of law,” are among the characteristics most correlated with high levels of per capita gross domestic product (GDP). Improvement in these categories is accompanied by a higher GDP rate of growth, likely because in a country free from corruption and with security of ownership, each citizen can invest their labor today with confidence that in the future they will own their own fruit. It will not be stolen or redistributed.

Here is the quote from the 2013 Index of Economic Freedom:

The Rule of Law and Development

The Index of Economic Freedom provides unambiguous confirmation of the importance of the rule of law to economic growth and prosperity. Both of the rule-of-law indicators in the Index demonstrate a high degree of predictive power with respect to per capita incomes. The coefficient of correlation between the property rights indicator and per capita incomes is 0.76 (1.00 equals perfect correlation). For freedom from corruption, the coefficient is 0.80. Taken together, the rule-of-law indicators are highly predictive of per capita GDP, irrespective of other factors or the overall level of economic freedom. (See Chart 1.)

The Effective Rule of Law Propels Prosperity

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David John Marotta is the Founder and President of Marotta Wealth Management. He played for the State Department chess team at age 11, graduated from Stanford, taught Computer and Information Science, and still loves math and strategy games. In addition to his financial writing, David is a co-author of The Haunting of Bob Cratchit.