IFs endogenizes level of freedom (FREEDOM), based on the Freedom House measures, by linking change from initial conditions to GDP per capita at purchasing power parity in an analytic function. For discussion of the relationship between GDP and democracy, see Londregran and Poole (1996) and Przeworski and Limongi (1997). The latter view it as a probabilistic relationship in which there are a variety of reasons (often external pressure) at all levels of economic development for the conversion of dictatorships to democracies and in which the conversion of democracies to dictatorships occurs commonly at low but not high levels of development. That pattern creates a positive correlation between economic development and democratic government. A multiplier in freedom level (freedomm) increases or decreases the level of freedom.

The Economic Freedom Institute (with leadership from the Fraser Institute; see Gwartney and Lawson with Samida, 2000) have also introduced a measure of economic freedom. IFs represents that in similar fashion.

The POLITY project provides an alternative to the freedom house measure of freedom or democracy level. In fact, it provides multiple variables related to political system. IFs EARLIER included formations of two of those, democracy (DEMOC) and autocracy (AUTOC). They worked in completely analogous fashion.

More recently, IFs has (1) combined the two Polity project measures into a single one as is often done with the Polity measures, setting POLITYDEMOC equal to democracy – autocracy + 10, a measure that runs from 0 to 20; (2) introduced a more complicated, multi-level forecast for the new measure.

Specifically, the project identified three levels of analysis for factors that affect democratic change: domestic, regional, and systemic. At each of the three levels there are multiple factors that can affect democracy within states. At the domestic level we can identify two categories of factors in particular:

• GDP per capita. This variable correlates highly with almost all measures of social condition; GDP provides the resources for democratization and other social change.
• values/culture. Values clearly do differ across countries and regions of the world and almost certainly affect propensity to democratize.

At the regional level (or, more accurately, the "swing-states" level) we can also identify three prospective drivers:

• world average effects. It is possible that the world average exerts a pull-effect on states around the world (for instance, increasingly globalization could lead to homogenization of a wide variety of social structures around the world).
• swing states effects. Some states within regions quite probably affect/lead others (obviously the former Soviet Union was a prime example of such a swing state within its sphere of influence, but there is reason to believe in lesser and less coercive effects elsewhere).
• regional average. States within a region possibly affect each other more generally, such that "swing states" are moved by regional patterns and not simply movers of them.

At the system level we identify three:

• systemic leadership impetus. It is often suggested that the United States and other developed countries can affect democratization in less developed countries, either positively or negatively
• snowballing of democracy (Huntington 1991). The wave character of democratization suggests that there may be an internal dynamic, a self-reinforcing positive feedback loop, of the process globally, partially independent of other forces that act on the process. Such a conclusion is consistent with the fact that idea spread and global regime development influence many types of social change (Hughes 2001)
• miscellaneous other forces. Historic analysis would identify world war, economic depression, and other factors to explain the global pattern of democratization, especially the surge or retreat of waves.

A project document prepared for the CIA’s Strategic Assessment Group (SAG) analyzed historic data and, in cooperation with David Epstein and Larry Diamond, fit an approach to it that cut across these three levels (see Hughes 2002: 59-74 for elaboration and documentation of the empirical work). The empirical work is not documented again here. The work did not find significant and consistent regional level effects, however, and the regional variables are therefore normally turned off.

The resulting formulation uses the domestic level as an initial base calculation because it is the empirically strongest piece, and later adds (optionally) the regional level effects and the systemic effects. The base calculation is further tied to the actual empirical levels in the initial year of the run, with the impact of the driving variables being felt only in change of those levels. An ‘expected" democracy level (DEMOCEXP) is computed using an analytic function that uses GDP per capita at purchasing power parity (GDPPCP) and the World Value Survey’s survival and self-expression dimension (SURVSE). These were found quite powerful in their level of correlation with democracy and the WVS dimension, interestingly, carries a cultural component into the formulation. The user can further modify this basic formulation with an exogenous multiplier (democm).

It is also useful to have a separate calculation of the empirically strongest piece of the formulation, namely the domestic effects, but without any adjustment to the initial empirical values. The expected democracy variable (DEMOCEXP) carries that. It can be compared with the fully computed values to see the degree to which there may be tension in countries between democracy levels that GDP per capita and values would predict, on the one hand, and those that are in the initial data. The greatest tension levels tend to be in the Middle Eastern countries, where decmocracy is considerably below "expected" levels.

The initial conditions of democracy in countries carry a considerable amount of idiosyncratic, country-specific influence, much of which can be expected to erode over time. Therefore a revised base level is computed that converges over time from the base component with the empirical initial condition built in to the value expected purely on the base of the analytic formulation. The user can control the rate of convergence with a parameter that specifies the years over which convergence occurs (polconv) and, in fact, basically shut off convergence by sitting the years very high.

On top of the country-specific calculation sits the (optional) regional or swing state effect calculation (SwingEffects), turned on by setting the swing states parameter (swseffects) to 1. The swing effects term has three components. The first is a world effect, whereby the democracy level in any given state (the "swingee") is affected by the world average level, with a parameter of impact (swingstdem) and a time adjustment (timeadj) . The second is a regionally powerful state factor, the regional "swinger" effect, with similar parameters. The third is a swing effect based on the average level of democracy in the region (RgDemoc).

David Epstein of Columbia University did extensive estimation of the parameters (the adjustment parameter on each term is 0.2). Unfortunately, the levels of significance were inconsistent across swing states and regions. Moreover, the term with the largest impact is the global term, already represented somewhat redundantly in the democracy wave effects. Hence, these swing effects are normally turned off and are available for optional use.

Also on top of the country-level effects sits the effect of global waves (DemGlobalEffects). Those depend on the amplitude of waves (DEMOCWAVE) relative to their initial condition and on a multiplier (EffectMul) that translates the amplitude into effects on states in the system. Because democracy and democratic wave literature often suggests that the countries in the middle of the democracy range are most susceptible to movements in the level of democracy, the analytic function enhances the affect in the middle range and dampens it at the high and low ends.

The democratic wave amplitude is a level that shifts over time (DemocWaveShift) with a normal maximum amplitude (democwvmax) and wave length (democwvlen), both specified exogenously, with the wave shift controlled by a endogenous parameter of wave direction that shifts with the wave length (DEMOCWVDIR). The normal wave amplitude can be affected also by impetus towards or away from democracy by a systemic leader (DemocImpLead), assumed to be the exogenously specified impetus from the United States (democimpus) compared to the normal impetus level from the U.S. (democimpusn) and the net impetus from other countries/forces (democimpoth).

Given both the global and regional/swing-state effects, it is possible to add these to the basic country calculation for the final computation of the level of democracy using the Polity scale. The size of the swing effects is constrained by an external parameter (swseffmax).