Imperfect democracy and economic freedom

Recent research has explored the determinants of economic freedom, an important measure of institutional quality. Concurrently, some scholars have posited a negative relationship between the quality of economic institutions and democracy, specifically at very high levels of democracy. This paper disaggregates the Polity IV index into a vector of 20 dummy variables to explore how differing degrees of democracy and autocracy may impact economic freedom, thereby leaving open the possibility for levels of democracy modestly less than perfect democracy to have better effects on economic freedom. This paper will also consider the Vreeland re-estimate of the Polity IV index, the Grundler-Kreiger measure of democracy, the use of a quadratic term, and quantile regression. The weak evidence that is found points to a modest positive relationship between democracy and economic freedom, with little evidence that marginally less democracy will subsequently lead to more economic freedom.