Distilling Institutions? On the Principal Components of Liberal and Other Measures of Governance

Abstract

This paper applies principal component analysis to the institutional dimensions which underlie Economic Freedom of the World and Worldwide Development Indicators in an exploratory manner to shed additional light on earlier literature. Using the data together, the first four principal components roughly correspond to, respectively, good governance, weak liberalizations, illiberal democracies, and the institutional environment of Latin American. Results from the exercise speak to methodological concerns regarding the inclusion of the size of government in measures of economic freedom, while identifying one dimension of institutions (weak liberalizations) that is nonobvious and conceptually useful. This exercise suggests that interpretations of similar analysis should be altered considerably.