Working Papers in Economics,
University of Gothenburg, Department of Economics

Abstract: Many previous empirical studies conclude that democracy increases economic freedom. However, these studies use highly aggregated indices of economic freedom, which eliminate interesting information and obstruct policy conclusions. The purpose of this study is to empirically study how different categories of economic freedom are affected by democracy in developing countries. There seems to be a positive effect of democracy on the categories Government Operations and Regulations and Restraints on International Exchange, but for the categories Money and Inflation and Takings and Discriminatory Taxation there is no effect. The robustness to extreme points and the model specification is tested.

Keywords: democracy; economic freedom; decomposition

JEL-codes: P51

23 pages, June 7, 2002

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