Democracy, market freedom, economic growth and income distribution

This dissertation empirically evaluates how democracy and market freedom impact economic outcomes, specifically, in terms of economic growth and level of wages. The four major questions addressed are first, how does market freedom affect growth? Second, how does democracy affect growth? Third, how does market freedom affect distribution? And fourth, how does democracy affect distribution? Related questions include whether particular aspects of market freedom, for example, the size of the government and the security of property rights, impact growth in different ways; and if democracy and market freedom's effects on growth are channeled through investment in physical or human capital. These broad and perhaps seemingly over simplistic questions are fleshed out by nesting them within an institutional context which highlights the vast differences between countries at various stages of development and the resulting impact on the answers to the above questions.;The major findings are as follows. Market freedom consistently has a positive impact on growth; however, the extent of this impact varies positively with countries' income levels. Democracy has a positive impact on growth except in low income countries, where its effect is insignificant. Market freedom affects the income distribution between capital and labor in favor of capital only in high income countries; in middle and low income countries it has no effect. When market freedom is included as an additional variable in a regression on wages, democracy's effect on wages disappears in high and middle income countries; only remaining positive in low income countries. The absence of an effect of democracy in low income countries on growth combined with its positive impact on wages suggests that the redistributive effect of democracy in low income countries may be growth reducing.