[This article was first published on Data Analytics and AI Archives - Giles, and kindly contributed to R-bloggers]. (You can report issue about the content on this page here)Want to share your content on R-bloggers? click here if you have a blog, or here if you don't.TLDR: This is the third post in a series examining relationships between the rule of law and other institutions as measured by the World Bank’s Worldwide Governance Indicators (WGI). Earlier posts demonstrated that the World Justice Project’s (WJP) measure can be proxied by the WGI Rule of Law (RoL) index, to take advantage of its wider coverage over a longer time-period.This post builds on that analysis by asking how institutions should be conceptualized and analyzed: can the rule of law (and other institutions) sensibly be examined one at a time, or do they need to be treated as parts of an interdependent system? Using the six dimensions of the WGI as a proxy for institutional strength, results suggest dimensions are indeed bound together. Countries that score well on the rule of law also frequently score well on government effectiveness and corruption controls, year-to-year movements are positively linked across most dimensions and a common measure (or cause) accounts for the bulk of the variation between countries.None of this will surprise anyone familiar with the literature and the analysis isn’t intended to prove institutions matter or that the WGI measure them. The point is narrower: to show why the rule of law can’t be examined in isolation and the risks of coming to the wrong conclusions when we try. It also sets up later posts in the series which will look at how the rule of law is connected with other national characteristics, such as economic growth.BackgroundInstitutions describe the constraints that structure political, economic and social interaction, such as how power is gained and exercised, how order is kept, and the way public resources are sourced, divided and used. Institutions shape incentives and opportunities: good institutions lead to more of the things we care about, like economic growth, peace and prosperity; while bad institutions lead to more of the thing we want less of, like poverty, inequality and conflict.A sizable share of my work sits in economic development, so institutions are never far from mind. This series, though, started with a specific job: a client hired me to look at the links between the rule of law and economic growth, and I went looking for an accessible introduction to the topic I could share. What I found was this analysis from the Atlantic Council on why the rule of law is the key to prosperity. Having noted how important institutions are and how difficult they are to define and measure, the authors move briskly to their conclusion that the rule of law is the single most influential factor behind long-term economic growth and societal wellbeing: Source: Annie (Yu-Lin) Lee, Joseph Lemoine, 20 August 2025, Why the rule of law is the key to prosperity: Lessons from thirty years of data, Atlantic Council (link) [Accessed 5 August 2026]That’s quite the claim and one of the inspirations for this post as from the looks of it, much of their evidence seems to come from the strength of a collection of pairwise correlations between the rule of law and their chosen proxies for well being (as measured by the Atlantic Council’s Freedom and Prosperity Index).Now, I’m no big city lawyer, but it seems to me that pairwise correlations are a poor piece of evidence to provide for such a strong claim. Particularly when we’re wading into the murky waters of prosperity, institutions and the causal connection between the two. And the characteristics being analyzed are plausibly all part of the same interdependent system.But, I’m not here to judge. Firstly, as the authors do mention that prosperity depends on the interplay of multiple institutional pillars, not just the rule of law. They’ve also tackled a complicated topic in an accessible way, which is an achievement in itself. And I’ve been there before too: as cross-country correlations are fun to explore and can provide a seemingly endless array of plausible policy interventions for making the world a better place. Also, the point of this post isn’t to criticize their analysis, but to help fill the gap I noticed when searching for resources on the topic.Instead, this post attempts to fill a gap by presenting analysis demonstrating why the rule of law, and institutions more generally, are best conceptualized as interdependent pillars within a mutually reinforcing system. That interdependence is what makes the literature so conceptually interesting and so frustrating to analyze, since the little data available on the topic arrives bundled with multicollinearity, endogeneity, collider bias, omitted variables and measurement error.The rule of law and institutions: a primerTo obnoxiously paraphrase research1, the rule of law is thought to influence economic development and wider prosperity through a variety of avenues, such as enabling the enforcement of property rights, easing trade between unrelated parties and providing a peaceful means for resolving disputes. However, because the rule of law and its outcomes also depend on a wider set of institutions and a tangled coalition different interests, analyzing it is no simple task.2On one level this is because institutions and their outcomes are interdependent. For instance, maybe the rule of law does drive prosperity, but perhaps prosperous countries are better able to invest in their legal systems too. Similarly, perhaps how the rule of law drives economic outcomes changes depending on the political system, geography and urbanization.Defining and measuring amorphous concepts like the rule of law also happens to be hard, which means researchers lean heavily on surveys asking respondents for their perception of corruption, law and order and government effectiveness (etc). However, because a person’s opinion of a country’s performance in one area is likely to be influenced by their impression of it in others, these measures are likely to agree with one another for reasons that have little to do with the institutions themselves. A respondent who has watched a corruption scandal unfold is unlikely to rate the courts generously that same year.Finally, it’s generally accepted that institutions are slow moving (or ‘sticky’), which means they don’t change much from one year to the next and will often exert their influence on wider outcomes indirectly. As a result, some of the most influential studies exploring the connection between institutions and prosperity analyse periods of a hundred years or more, such as Acemoglu, Johnson and Robinson who compared current income with a century old proxy for institutional quality (settler mortality).Figure: Income vs. Settler mortalityCountries with higher GDP per capita now tended to be those with stronger colonial institutions (as proxied by settler mortality) Source: Acemoglu, Daron, Simon Johnson, and James A. Robinson. 2001. “The Colonial Origins of Comparative Development: An Empirical Investigation.” American Economic Review 91 (5): 1369–1401. DOI: 10.1257/aer.91.5.1369The Worldwide Governance IndicatorsAlthough there are good reasons to question whether the WGI provides a reliable and holistic measure of institutions, (or even that it measure what it claims to) it is arguably one of the more reliable and well-tested attempts at measuring the cross-country quality of institutions. I also have a personal preference for the WGI as somebody who is hired to design, build and evaluate composite indicators, because it gets a core part of index design right: transparently sharing their methodology and data, and being open to making revisions to reflect feedback.The WGI also has the practical advantage of being intuitive enough for outsiders to understand what it’s trying to measure. With governance reflecting the traditions and institutions by which authority in a country is exercised across six dimensions:Voice and Accountability: perceptions of the extent to which citizens can participate in selecting their government including electoral integrity, and of accountability mechanisms for citizens—reflected in the ability to access information, governmental oversight bodies, and a robust traditional/digital media landscape; andPolitical Stability: perceptions of the extent to which political power and governance are secure from destabilization, and of the likelihood that authority will be challenged or altered through violent, coercive, or unconstitutional means. The second aspect—government capacity to formulate and implement sound policies—includes:Government Effectiveness: perceptions of the quality of public services, the civil service, policy formulation and implementation, and the credibility of a government’s decisions; andRegulatory Quality: perceptions of the government’s ability to design and implement policies and regulations that promote private sector development. The third aspect—respect for institutions that govern economic and social interactions— comprises:Rule of Law: perceptions of the extent to which agents respect and follow the rules of society, including contract enforcement, property rights, the police, courts, and the likelihood of crime and violence; andControl of Corruption: perceptions of the extent to which public power is used for private gain, including both petty and grand corruption, as well as capture of the state by elites and private interests.Source: World Bank, 2025, “The Worldwide Governance Indicators: Revised Methodology for Measuring Governance Using Perception Data December 2025”, link.Note: For brevity, this post uses institutions, governance and the WGI interchangeably, in full knowledge that they aren’t the same thing. The WGI is the World Bank’s conceptualization of a particular set of institutions it considers useful, interesting and/or relevant. The WGI is not meant to be an all-encompassing measure suited to every use case, it’s just the most suitable measure for this analysis. The scores are also proxies for institutional quality rather than measures of it. Proxies come with the territory when trying to measure hard-to-define things like institutions and/or governance, as direct measurement is unavailable or unsuitable, particularly for cross-country comparisons.Figure: Worldwide Governance Indicator DimensionsThe WGI attempts to measure governance across six dimensionsSource: my exceptional design skillsFYI: Daniel Kaufmann has also publicly responded to criticism of the WGI, which has resulted in several iterations of the methodology over time.Project Setup and Data CleaningOnce again, the WGI data can be downloaded here. Because the code analyzes all WGI indicators, fnc_read_wgi_sheets() load data from each sheet and combine it into a single dataframe.Code: Plotting functions#load the packages we'll probably needlibrary(tidyverse)library(readxl)library(janitor)library(qgraph)library(rstatix) library(broom) #Note: ppcor is also required, but called directly to avoid conflicts#Install with install.packages("ppcor") if needed.#define pathref_wgi_path output column nameref_wgi_indices filter(if_all(all_of(ref_wgi_cols), \(x) sum(!is.na(x)) >= ref_min_years)) |> summarise(across(all_of(ref_wgi_cols), \(x) mean(x, na.rm = TRUE)), nmb_years = n(), .groups = "drop")#how many countries survive the coverage filterchk_wgi_country_nmb