Social market economy: Towards a comprehensive composite index

Abstract

Institutions that potentially have a positive impact on economic performance rarely exist outside of a system of institutions; rather they are embedded in the economic order of a country. It is thus imperative to investigate bundles of performance-enhancing institutions, particularly those bundles that form the basis for economic orders. This paper is based on bundles of institutions that have empirically proven to be prosperity enhancing. It proposes a measurement of this bundle of institutions in the form of a composite index, which is based on 12 different data series. Index data is available for 163 countries between 2005 and 2010 and it allows for comparative analyses using the overall index as well as its three sub-indices, measuring political, economic and societal institutional quality. The index is a step towards a more systematic international comparison of institutional settings. In future research, it can contribute to identifying prosperity enhancing bundles of institutions through regression analysis.