Freedom from unit roots? The time series properties of democracy and economic freedom

This paper revisits Sobel and Coyne (2011), which finds a cointegrating relationship between democracy and economic freedom. We extend their sample with data published since that time, make use of the second generation of panel unit root and panel cointegration tests, and apply the more comprehensive measure of democracy from Varieties of Democracy. With these methodological improvements in place, we do not find that either economic freedom or democracy has a unit root in the full set of countries studied, and they therefore cannot have a cointegrating relationship. We then apply the methodology developed by Chortareas and Kapetanios (2009) in order to isolate a subset of countries whose institutions may in fact have a cointegrating relationship.