We use the Index of Globalization developed by Dreher (2006) for 155 countries from 1970-2006. There were 11 countries that were not covered in this index, although the same source has an index of Political Globalization which includes more countries. We filled in the missing values with the fitted values based on the index of Political Globalization and on the Heritage Foundation’s Trade Index. The Index of Globalization is positively correlated with Economic Freedom (ρ=0.58) but there is sufficient independent variation to capture a separate effect of openness to international product and capital markets.

# **_C. Civil Rights_**

Individual returns to schooling may also depend on the protection of individual political rights. These freedoms can be viewed as the right to act without fear of political retribution as opposed to the economic retribution that would be generated by the country’s economic institutions. The Human Rights Dataset by Cingranelli and Richards (2005) provides measures of personal freedoms for 198 countries from 1981-2004.<sup>13</sup> We use the Empowerment Rights Index which is constructed from measures of the extent to which individuals in the country had freedom of movement within or out of the country; freedom of speech without government censorship; freedom to participate in politics; freedom of religion; and worker rights protections. This index is positively correlated with the Economic Freedom Index, but at 0.44, the correlation suggests that the two indexes are not identical. Again we will examine how the subcomponents of the index perform relative to the aggregate index, although a single factor loading explains virtually all of the common variation among the subcomponents.

Individual political freedoms are not as clearly related to the pursuit of the highest return to human capital as are individual economic freedoms, and yet these freedoms could contribute to a climate of creativity and innovation. Florida (2007) emphasizes that acceptance of individual differences fosters innovation and a climate of entrepreneurship.

# **_D. Democracy_**

Acemoglu and Robinson (2005) present theory and evidence on the development of democracy. They view economies first developing with elites controlling resource allocations and the masses lacking political power or economic rewards. However, with economic growth comes improved education and economic circumstances for the disenfranchised who will be tempted to take control by force. The elite relinquish power by extending political concessions to the middle and lower classes because they want to avoid violent overthrow. Democracy is therefore associated with broad dispersion of the benefits of the economy and greater political freedom. How this affects returns to schooling is unclear. While democracy is positively correlated with rising per capita incomes, the effect is not causal. Furthermore, democracy leads to rising taxation of land and capital and so in relative terms, it is the elite who lose and the lower classes who gain. If the elite are the most educated, then democracy would actually lower returns to schooling.

Democracy has been associated with a general presumption that decentralized allocation of resources improves the efficiency of government services ranging from education, health care,

> 13 We use the data for the year that matches most closely the date of the country household survey.

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