Trials of The Left - How Politics Affect Economic Outcomes in Latin America

Trials of the Left: Do Leftist Governments Spell Economic Disaster for Latin America?
A thesis presented
by
Auren Evan Kaplan
The Department of Political Science

in partial fulfillment of the requirements
for the degree with honors
of Bachelor of Arts
The University of Michigan
March 2009
1
Acknowledgements
For their guidance and direction in the process of creating this thesis, I offer my most
profound thanks to Professors Mika Lavaque-Manty, Robert Mickey, and William Clark.
For inspiring within me a deep-seated intellectual interest in the topic of economic

development and a predilection for the region of Latin America, I extend my sincere
gratitude to Professors John Jackson, Ashutosh Varshney, and Mary Corridore.
And for their unwavering support and unconditional love during many late-night phone
calls and discussions, and throughout my college career, I deeply thank my parents,
Frances Goldstein and Gerald Kaplan.
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Trials of the Left: Do Leftist Governments Spell Economic Disaster for
Latin America?
TABLE OF CONTENTS
CHAPTER 1: Introduction.................................................................................................4
CHAPTER 2: Economic Development Strategies in Latin America...............................12
CHAPTER 3: Partisanship & Economic Performance in OECD Countries....................28
CHAPTER 4: Data and Empirical Analysis.....................................................................43
Introduction.........................................................................................................................................43
Variables..............................................................................................................................................44
Data.....................................................................................................................................................47
Model..................................................................................................................................................48
Table 1: Left’s Effects on Budget Surplus; No Interaction with Personal Vote........................51
Table 2: Left’s Effects on Growth; No Interaction with Personal Vote......................................53
Table 3: Left’s Effects on Inflation; No Interaction with Personal Vote....................................56
Table 5: Left’s Effects on Budget Surplus When Interacting with Personal Vote....................59
Table 6: Linear Combination Test Showing Personal Vote Interaction Effects in the Model
with Budget Surplus.........................................................................................................................61
Table 7: Left’s Effects on Growth When Interacting with Personal Vote..................................62
With GDP Growth............................................................................................................................65
Table 9: Left’s Effects on Inflation When Interacting with Personal Vote................................66
with Inflation.....................................................................................................................................68
Summary of Findings..........................................................................................................................68
CHAPTER 5: Concluding Remarks.................................................................................71

BIBLIOGRAPHY..............................................................................................................78
3
4
CHAPTER 1: Introduction
The problem of development is one of great relevance to economists, who
frequently focus on the specific policy structures best suited to grow economies and
effectively develop societies. In this sub-discipline called development economics, these
economists may focus on macroeconomic goals such as increased Gross Domestic
Product (GDP) growth, or on interstate policy issues of tariffs and the negative growth
consequences they may have for the economies of developing countries, or on
microeconomic questions regarding the ability of the poor to generate enough income to
subsist with adequate nutrition. Their work is necessary and to be commended, for the
pursuit of improved development outcomes is a noble one. Indeed, if one were to
synthesize a discussion on development into its purest form, what would result is a focus
on materially improving the quality and scope of people’s lives – increasing literacy rates
or years of education, or focusing on increasing life expectancy while decreasing infant
mortality. For all the studies completed and books written on the economics of
development, common themes have emerged that are accepted across the literature as
central to the quest for improved development outcomes, whether through focus on
education, or improved infrastructure, or access to healthcare, or through steady
economic growth with minimal inflation and controlled unemployment. In short, the
theoretical body of knowledge on how to successfully improve development outcomes is
vast. While discrepancies still exist over details and new trends emerge as time passes,
the basic concepts regarding successful development are agreed upon. The answers are
out there.
5
Yet it takes but a fleeting glance at the current state of world affairs to realize that
for all the knowledge and theory on development economics in the world, the reality is
one in which differences in development measures across countries and regions remain
vast. While the most developed countries in the world boast life expectancies near or
above 80 years (Japan, 82 years; France 81 years; United States 78 years), the poorest of
countries – most located in Africa – have life expectancies barely half that of their fully
developed counterparts (South Africa, 49 years; Nigeria, 47 years; Zimbabwe, 44 years). 1
Even so-called ‘emerging market’ developing countries, while far more developed than
their African counterparts, are literally years behind (and in some cases decades behind)
first-world countries in terms of life expectancy (Brazil, 72 years; Bolivia, 67 years;
Russia, 66 years).2 With this vast difference in mind, it is evident that knowledge of
proper development policies is not sufficient. The implementation of those policies
requires action by government, which at least in cases of democratic governance is on
some level accountable to its citizens. Knowledge of good policies is fine, but it is
through the action (or inaction) of government that these policies either are or are not
implemented. It will be through an examination of political differences within
government, and the implications those differences will have for development, where my
thesis finds its focus. I will explain further in a moment.
The impetus for this thesis stems from my travels in South America after studying
abroad in Santiago, Chile during the spring and summer of 2007. Chile is a nation often
described as among the most developed in Latin America, indeed perhaps approaching
1
Central Intelligence Agency World Factbook. Rank Order – life expectancy at birth.
https://www.cia.gov/library/publications/the-world-factbook/rankorder/2102rank.html (access
January 17, 2009)
2
Ibid.
6
“first-world status.”3 Yet even upon first arriving to the sprawling megalopolis of
Santiago, I noted a poverty that was simply more pervasive than to what one is
accustomed in a developed country like the United States. And in smaller, poorer
sections of the country such as the Atacama Desert in the north, it was common to see
homes constructed of mud-bricks, unpaved roads, and large numbers of people earning
their living as vendors selling the most basic of items. Like most Americans, I had heard
stories regarding poverty and sub-first-world conditions elsewhere in the world, and I had
seen pictures of the substandard conditions with which the impoverished lived outside of
our borders. But my experience seeing this poverty first-hand led me to question on a far
deeper level exactly why situations such as these occurred outside of our borders.
Yet for the stark differences in wealth I witnessed between the first-world Chilean
middle class and the many remaining in an impoverished underclass, nothing could
prepare me for the absolutely abject poverty I would come across when traveling through
Peru and Bolivia. I would see poor children on the street with decaying teeth, unpaved
one-lane dangerous mountainous roads, and old ladies selling coca leaves on the streets
of La Paz for $0.02 a bag. The differences in development between these countries and
that of Chile were practically unfathomable, let alone in comparison with the United
States. I will never forget taking a horse-back riding tour in Tupiza, Bolivia, where I
learned that our 17-year old guide made just $20 every 2 weeks for his eight-hour
workdays. When asked where the money would go, he responded that he gave it to his
mother to help feed the family. Faced with a poverty as pervasive and deep as this, one
that a first-world American of any economic level simply could not understand without
3
Walter, Matthew. Chile, Seeking First-World Status, Tackles Santiago River Mess.
Bloomberg.com, May 17, 2007 (accessed February 17, 2009
http://www.bloomberg.com/apps/news?pid=20601087&sid=aXT9fzUY3Ti0&refer=home)
7
exposure, my questioning grew more in-depth as to why some Latin American countries
were so much poorer than their more relatively affluent counterparts.
After much reflection, my gut told me that politics had to be a defining difference.
Again, this thought process was solidified during a portion of my post-study abroad trip,
during a visit to Cusco, Peru. The bus-ride from Lima to Cusco took twice as long as
anticipated, because huge boulders and tree limbs had been strewn across the road. When
we arrived to Cusco, our first day in the city was overwhelming as an exorbitant number
of Peruvian citizens paraded around the streets, shouting “SOTEP!” at the top of their
lungs as they waved signs and banners. I came to learn that SOTEP was a teacher’s
union, and that the rocks strewn across the road were part of a massive, country-wide
protest by members of a teacher’s union against the government’s new education policy
—one that would have proposed strict testing guidelines and accountability standards for
teachers to follow.
It is not the purpose of this thesis to discuss the various efficacies of educational
policies, but it nonetheless is pertinent to take note of the fervency with which these
teachers protested a policy that was designed to improve the quality of education of the
children they taught for a living. The lesson this experience engraved in my mind is one
of utmost importance for the purpose of this thesis: large members of the population,
particularly those on the left and on the lower end of the economic spectrum (such as
teachers in a poor city like Cusco), may engage in behavior that is counterproductive to
their country’s overall wellbeing. It may be that those teachers would benefit from
reduced standards in that they may keep their jobs, but the students (importantly, the
future economic drivers of Peru) certainly would not benefit. I began to wonder about
8
other ways in which a mobilized left might take political action that would presumably be
beneficial to their interests, but in the long run would prove detrimental.
To return for a moment to the topic of development, governments have the power
to enact policies that have remarkable potential for either boosting the economic and
overall development standing of their country, or diminishing it—not only do they
control exceptionally large amounts of capital (in the form of taxes and reserves), but
they also have the power to set policies that drastically affect whether companies will
remain invested in the economy, and whether foreign capital will continue to flow
inward, sparking investment. Those are merely examples; there are of course a number
of other economic metrics that are intimately tied to the state of a country’s development.
Take the government’s role in dealing with capital, for instance. A government can
choose between redistributing all the wealth, incentivizing capital investment with no
redistribution, or engaging in macroeconomic policies to bring about a healthy mix
between the two polar extremes. 4 In each of these instances, decisions are made by
elected officials (at least in the event of democracies) who are answerable to
constituencies and political pressures that might not be aware of the most appropriate
government actions in terms of generating positive macroeconomic results.
The case of the teachers on strike in Peru serves as one pertinent example of the
ways in which the voting public may vocalize opposition to policies that could in the long
run be detrimental to their own wellbeing. But it is my intuition that behavior of this type
is not merely relegated to teachers protesting a new education policy. Rather, this
example may serve to characterize a behavior endemic to political action of left-leaning

4
Przeworski, Adam and Wallerstein, Michael. Structural Dependence of the State on Capital. The
American Political Science Review, Vol. 82, No. 1 (Mar., 1988) p. 11.
9
supporters—that, at least in regards to Latin America, they may engage in political action
that could lead to detrimental outcomes. In a discussion of economic policy, this notion
becomes particularly salient as left-leaning members of society could support political
parties taking government action that, while popular, may not be in their best economic
interests. When voters elect left-leaning politicians on the expectation of certain
government action, those politicians may engage in that partisan action even if doing so
could ultimately lead to inferior economic performance. Thus, the question arises: does
the partisan orientation of politicians and the government they comprise make a
difference in terms of economic performance when examining countries in Latin
America?
The prevailing literature discussing the broad role of partisanship in shaping
economic policy and outcomes reveals decidedly mixed results, and this literature will be
reviewed in detail in the upcoming chapters. Scholars such as William Clark, for
instance, would argue that partisanship’s effects on macroeconomic outcomes are barely
discernable, if they even exist at all. 5 But this discussion avoids investigation into the
particulars of Latin American politics and economic development. And indeed, various
countries in the region have undergone a host of different development trajectories, in the
process experiencing far greater degrees of vast political change than the OECD countries
commonly studied in the prevailing literature. Additionally, the societal cleavages
present in pan-Latin American society even today remain far more unequal than in the
OECD countries frequently studied. It is quite notable that Uruguay, the Latin American
nation with the lowest Gini coefficient (a statistical measure of inequality) in the region
5
Clark, William Roberts. Capitalism, Not Globalism: Capital Mobility, Central Bank
Independence, and the Political Control of the Economy. University of Michigan Press, Ann Arbor,
2003.
10
(45.2) has greater income inequality than the most unequal of the developed nations
(United States, 45) or Eastern European nations (Armenia, 37).6 Perhaps the sharp
degrees of economic polarization found across Latin America lead to decreased stability
of the political system, with partisan interests taking action in ways in which the OECD-
centric literature would not foresee.
But rather than continue to offer conjecture, it is more pertinent to evaluate the
various ways in which Latin American countries actually have developed over the last
half-century. I undertake this evaluation in order to make clear the very real differences
between the Latin American situation and the OECD7 situation, and to present a testable
possibility for the role of partisanship in causing various different development outcomes
in those Latin American countries, as measured through macroeconomic outcomes such
as GDP growth, inflation, unemployment, and other pertinent metrics. In the upcoming
chapter, I will first present a discussion on the various economic development strategies
Latin American governments implemented over the last seventy or so years. I will very
briefly contrast that discussion with the prevailing literature on partisanship’s role in
macroeconomic policies and outcomes as studied through the lens of OECD countries,
which will be examined in further depth in Chapter 3. I will then present my proposed
explanation for the differences in development outcomes in light of those strategies.
Finally, I will propose a test of my explanation whereby I outline my hypotheses and
other potentially competing hypotheses, offering some brief conjectural arguments in
6
Central Intelligence Agency. The World Factbook—Field Listing – Distribution of Family Income
– Gini Index. CIA World Factbook, April 15, 2008. Accessed April 21, 2008
https://www.cia.gov/library/publications/the-world-factbook/fields/2172.html
7
By OECD, I refer to the countries belonging to the Organization for Economic Co-operation and
Development, most of which are among the most developed in the world.
11
support of my hypothesis and its implications for the effects of partisan orientation of
governments on the economic performance of nations under their command.
12
CHAPTER 2: Economic Development Strategies in Latin America
My examination of Latin American development strategies begins in the lead-up
to the Great Depression. In the face of what many Latin American economists
determined to be chronic underdevelopment in the region during this period, a theory of
the world economy grew in popularity that placed the most developed nations in the
center, with less developed nations such as those in Latin America in the periphery. 8
Economists prescribing to this belief, led by Raúl Prebisch (director of the influential
United Nations Economic Commission for Latin America or ECLA), “attributed the
causes for Latin America’s underdevelopment to the system of international free trade”
existing at the time.9 To these economists, the neo-liberal agenda of the free market
proved untenable for the Latin American economies situated on the ‘periphery’ of the
world market, and in turn they devised an economic development strategy that sought to,
in short, “develop industries in a protected environment.” 10 Rather than focus on
liberalizing their economies, these theorists sought to generate industrial production
within their own borders in order to replace foreign-produced manufactured products that
previously had been imported. In so doing, governments would employ incentives to
create both forward and backward linkages in the industrial process and thereby
encourage further domestic economic growth.11
8
Klarén, Peter F. and Bossert, Thomas J. Promise of Development: Theories of Change in Latin
America. Westview Press, 1986, p. 15. (accessed February 19, 2009 scholar.google.com)
9
Ibid, p. 14.
10
Franko, Patrice M. The Puzzle of Latin American Economic Development. Rowman &
Littlefield, 2007, p. 59. (accessed February 20, 2009 scholar.google.com)
11
Brohman, John. Popular Development: Rethinking the Theory and Practice of Development.
Blackwell Publishing, 1996, p. 53. (accessed February 20, 2009 scholar.google.com)
13
This development trajectory was initially fairly successful in a number of Latin
American countries. During the decade of the 1930s, Latin American countries
experienced relatively prosperous levels of GDP growth (4.8% in Chile, 4.2% in
Colombia, 3.6% in Brazil) in comparison with more industrialized countries (2.7% in the
United States, -1.2% in France, 3.4% in Great Britain). 12 But a central problem with this
form of development, known as import-substitution industrialization (ISI) was that while
domestic industry shifted its orientation towards the production of non-durable goods that
were previously imported, the production of those goods required increased imports of
other prime materials and capital goods necessary for those same industries. 13
Effectively, by stimulating domestic industrial production of advanced manufacturing
goods, these economies were forced to continue to augment their degree of imports—
while they were no longer importing the goods that they had shifted domestic production
to develop, their net dependence on foreign imports (now of prime materials) actually
increased.14 With Prebisch’s ECLA garnering an official affiliation as a United Nations
institution, the ISI development policies suggested by ECLA garnered more credibility as
they spread throughout the region, representing the first region-wide school of thought
related to economic development in Latin America.”15
It is important to note, for the purpose of maintaining the focus of this thesis, the
connection of the political sphere to these policies, as they occurred during a period of
time in which the conservative agrarian oligarchies were rapidly ceding political ground
12
Maddison, A. 1982. Phases of Capitalist Development. Oxford: Oxford University Press.
13
Corbo, Vittorio. Problemas, Teoría del Desarrollo y Estrategias en América Latina. Estudios
Públicos, 32 (primavera 1988), pp. 12-13.
14
Ibid, p. 20.
15
Hirschman, A.O. 1961. “Ideologies of Economic Development in Latin America”. In A.O.
Hirschman (ed.). Latin America Issues: Essays and Comments. New York: Twentieth Century Fund,
Inc.
14
to mass movements of urban workers.16 While wealthy land-owners supported policies
oriented towards exports, increasingly mobilized workers developed important political
alliances with the new domestic industrial powers in order to continue the ISI
development trajectory, seen as favorable to both of their interests.17 This union of
worker and industry generated strong political and institutional support for maintaining
ISI development policies, with the trend occurring not merely in one country but across
wide swaths of Latin America. I do not intend to immediately claim a direct causal link
between the increased power of lower-class workers and the newly industrial sector
(perhaps represented through leftist control of government) and the continued trend
across the region towards ISI-related policies, as statistical analysis and solid data
evidence is required before making such a statement (and such analysis will be presented
in Chapter 3). But the apparent connection is indeed noteworthy.
Of course, just as noteworthy is the apparent eventual failure of ISI-style
development. Scholar Anil Hira described the failure of ISI as the result of excessive
protection, combined with increased burdens on public sector budgets and
discouragement of exportation in favor of ramping up domestic production and
consumption—all of which combined to generate an enormous debt crisis that would
cripple national economies across Latin America for years.18 As Baer writes, by the
1960s “industry had become the dominant sector in Argentina, Brazil, Mexico, and
Chile,” the four countries representing Latin America’s largest markets and those most
16
17
Ibid, p. 19
18
Hira, Anil. Did ISI fail and is neoliberalism the answer for Latin America? Re-assessing common
wisdom regarding economic policies in the region. Brazilian Journal of Political Economy, Vol. 27
no. 3, Sao Paulo, July/Sept. 2007.
15
equipped to handle domestic growth in supply of new industrial goods.19 Coupled with
limited exports and underdeveloped national agriculture, nations across Latin America
eventually suffered from long-term imbalances in their current accounts, leading to
dramatically increased external debt.20 Faced with inherent restrictions in the size of the
domestic market towards which most industry was targeted, domestic capital was limited
in its capacity, creating demand for substantial inflows of capital from abroad with only
limited exports and outward flows of capital. This trend further exacerbated external debt
across the region. After the Mexican government implemented various policies to
stabilize its faltering economy in the late 1970s and early 1980s, including a sharp
devaluation of the peso, serious doubts were raised about Mexico’s solvency. 21 Similar
structural issues occurred across the region, and when in 1982 Mexico defaulted on its
debt, other Latin American governments followed—including Brazil, another significant
economic player in the region.22 The ISI approach towards region-wide development had
clearly ended in failure.
The trend towards ISI development policies was indeed prevalent across Latin
America, but another concurrent development trajectory also bears mention, both for its
relation to this thesis’s central argument and for its unquestioned importance in defining
the socio-economic and political struggles of post-World War II Latin America. That
policy is known as populism, defined by scholars as a political movement towards
19
Baer, Werner. Import Substitution and Industrialization in Latin America: Experiences and
Interpretations. Latin American Research Review, Vol. 7, No. 1, (Spring, 1972), p. 101.
20
Schmidt, Henry. The Mexican Foreign Debt and the Sexennial Transition from López Portillo de
la Madrid. Mexican Studies / Estudios Mexicanos. Vol. 1, No. 2, (Summer, 1985), pp. 229-30.
21
Calderón-Madrid, Angel. Currency Crises and Institutional Changes in Latin America: Lessons
from Mexico. Presented at the Conference Euro and the Dollar, Coral Gables, FL, April 2006, p. 2.
22
Silk, Leonard. Brazil’s Battle Against Banks. New York Times, March 4, 1987 (accessed
February 20, 2009 nytimes.com)
16
“expanding state activism to incorporate the workers in a process of accelerated
industrialization through ameliorative redistributive measures.”23 In the sense of
supporting domestic industrial production, macroeconomic populism carries similarities
to ISI-style development, but the important distinction lies in the explicit political
motives underlying the decision to engage in such policies—redistribution of wealth
towards the working classes. Populist macroeconomic programs typically “emphasize
three elements: reactivation, redistribution, and restructuring of the economy,” with
reactivation meaning a renewed push for growth and the restructuring occurring in the
form of “sav[ing] on foreign exchange and support[ing] higher levels of real wages and
higher growth.”24 Beneath the motives for redistribution and populist economic policy at
large lays a deep ideological impetus, characterized by Dornbusch as one promoted by
people “who see the need for social progress and are impatient about the means, who
believe the special conditions of their country yields a fruitful yet unexploited strategy for
social progress.”25 In short, political motives are inherently tied into the push for populist
macroeconomic policy.
Populist economic policies frequently arose in the wake of conservative economic
stabilization programs designed to limit inflation but that additionally constrained growth
and kept wages low. Importantly, these conservative policies often led to surpluses of
foreign reserves, adding additional political pressure onto government to spend those idle
funds. In the case of Chile, for instance, President Salvador Allende (elected on promises
of drastically raising wages of lower- and middle-class citizens and engaging in wealth
23
Drake, P. (1982) "Conclusion: Requiem for Populism?" in Conniff, M. L. (Ed) Latin American
Populism in Comparative Perspective, Albuquerque, University of New Mexico Press.
24
Dornbusch, Rudiger and Edwards, Sebastian. Macroeconomic Populism in Latin America.
National Bureau of Economic Development, Cambridge, MA, May 1989, p. 6.
25
Ibid, p. 6.
17
redistribution) entered office with a stockpile of over $400 million US in international
reserves, equal to an entire half-year’s worth of imports. 26 The political motivations of
those interested in proposing populist macroeconomic policies are indeed perhaps best
exemplified by the Chilean case, where multiple political parties representing various
constituencies of the left bounded together in a coalition entitled Unidad Popular to
ensure that populism’s doctrine would enter the halls of government policymaking. But
make no mistake, both communists and socialists within the coalition merely “considered
the alliance and the politics that sustained it to be a tactical intermediate step that would
help set the basis for the transition to socialism.” 27 These political leaders had a
formative notion of social governance that contravened the traditional limits of
government’s role as neutral arbiter in encouraging economic gain for its citizens, and
they apparently believed that their new socialist order would prosper even if the
economic policies they engaged in were drastically unorthodox.
Unfortunately for these noble proponents of social equality, the realities of the
economic situation that their populist policies engendered proved to be unsustainable. In
describing the phases of populist macroeconomic performance, Dornbusch notes four
distinct stages—and indeed, in the first stage, policy readjustment towards real wage
growth and overall economic growth is successful, with inflation limited by price
controls and shortages alleviated by imports. 28 Yet as the effects of these policies take
full effect, stage two sets in as the economy begins to run into bottlenecks due to
expansion in demand for domestic goods and because of a growing lack of foreign
26
27
Ibid., p. 10.
28
18
exchange. While wages temporarily keep up with inflation, the “budget deficit worsens
tremendously as a result of pervasive subsidies on wage goods and foreign exchange.” 29
As the economic situation continues to worsen, pervasive shortages eventually lead to
massive inflation and capital flight with real wages falling severely, and ultimately a new
stabilization plan is implemented that must preside over wage drops to a level
“significantly lower than the when the whole episode began.”30
This process occurred exactly as described in Chile, where the populist
macroeconomic policies began with what any neutral observer would describe as
incredible success—“real GDP grew at 7.7 percent, average real wages increased by 17
percent, aggregate consumption grew at a real rate of 13.2 percent, and the rate of
unemployment dipped below 4 percent.”31 Yet at the same time as the Chilean economy
entered its second and third stages in the populist macroeconomic scheme described
above, political pressure from the left actually encouraged a deepening in the exercise of
populist macroeconomic policy. Cousiño notes the role of intellectual youth of the Left
who pushed the government of the Unidad Popular towards even more radical positions
at the same time as “the political climate began to demonstrate…[that the] productive and
distributive apparatus of society had failed” in its mission for growth and social
equilibrium.32 Rather than realize that their policies were destined for failure, Chilean
leftists placed a premium on installing a new ideology (of socialism) as the foundation of
their government and pushed for their policies with even increased fervency. This action
virtually assured that the political cleavage in the country would prove unsustainable, and
29
Ibid, p. 6-7.
30
Ibid, p. 7.
31
Ibid, p. 19.
32
Cousiño Valdés, Carlos. Populism and Political Radicalism During the Unidad Popular
Government (translated from Spanish). Estudios Públicos, 82 (autumn 2001), pp. 12-13.
19
the damage inflicted upon the Chilean economy and its nation’s citizens left the nation far
worse economically than when Salvador Allende first took power.
The spectacular failure of ISI and populist macroeconomic policy both in Chile
and across the region brought about a new chapter in Latin American development theory
and practice. While the transformation did not occur simultaneously across the region
(indeed, Peru was facing the brunt of its macroeconomic populism into the 1990s),
numerous countries sought international help in order to re-stabilize their economies. 33
Through coordination with the World Bank, the International Monetary Fund organized a
series of loans for Latin American nations, but predicated them on a switch to a package
of neo-liberal economic policies labeled the ‘Washington Consensus’. With main policy
components of restricted state spending, privatization of nationalized industries,
deregulation of markets, and increased openness to foreign trade, the policies marked a
sharp change from the ISI path of growth, and particularly the severe populist economic
bent that drastically affected a few of Latin America’s economies. 34 Of course, some
countries began to liberalize their economies even before the debt crisis began to sweep
the region in the 1980s—Corbo cites Uruguay, Chile, and Argentina in particular, noting
that Chile’s liberalization was the most profound (this makes intuitive sense, with a
dictatorship in power the government could implement policies damaging to a large
swath of the population without exacting detrimental political consequences).35 But in
33
34
Washington Consensus. Center for International Development, Harvard University, April 2003
(accessed February 20, 2009 http://www.cid.harvard.edu/cidtrade/issues/washington.html)
35
20
the instance of liberalization, the degree to which partisan politics plays a role appears far
more nuanced than in the obvious leftist-driven populist strategies examined previously.
Latin American countries across the region implemented policies of liberalization
in the aftermath of populism and ISI, including “governments of every partisan stripe.” 36
But while partisan jockeying on whether to liberalize is not immediately as visible,
Murillo found that partisan differences remained in the details regarding the ways in
which governments decided to privatize national industries and liberalize their
economies. Given a trend towards privatization, the “political bias of the privatizing
government influences institutional choices, such as regulatory institutions and the selling
conditions of privatization, which in turn affect future resource distribution in privatized
markets.”37 Murillo notes that due to the multi-class nature of Latin American parties of
the left, privatization was actually used as a tool of coalition-building, “which includes
government expenditures in addition to the allocation of market resources” in order to
curry “favor [with] these poor constituencies that cannot acquire direct property through
privatization.”38 So, at least according to Murillo, a government’s decision to privatize
can have very real and different consequences for government spending and other metrics
of policy, depending on which party is in power.
Brooks also revealed a partisan bias in regards to liberalization, finding that
“governments headed by left-popular executives adopted systematically lower levels of
capital account openness than other governments in Latin America.” 39 She posited this
36
Brooks, Sarah M. Explaining Capital Account Liberalization in Latin America: A Traditional Cost
Approach. World Politics 56 (April 2004), p. 408.
37
Murillo, M. Victoria. Political Bias in Policy Convergence: Privatization Choices in Latin
America. World Politics 54 (July 2002), p. 469.
38
Ibid, p. 473.
39
21
relationship as arising “from the greater risk that left governments would lose the
confidence of their core constituency, working-class and low-skill laborers, who often
suffer greatly from capital account liberalization.”40 This view of left partisan control
leading to altered economic policies and outcomes is buttressed by findings from
Kaufman and Segura-Ubiergo. The two scholars argue that not only is “budgetary
priority attached to social security…likely to be higher during years when popularly
[Left] based governments are in power,” but that those same left-aligned governments are
“inclined to squeeze human capital expenditures, possibly to protect pension spending.” 41
Once again, the implication here is that left-aligned political representatives are seen as
engaging in partisan action affecting economic policy in order to favor the interests of
their constituencies. A further implication is that leftist governments may be engaging in
behavior that could be detrimental to economic performance (by avoiding liberalization
or investing in human capital) in order to reinforce their political viability through
increased social spending.
Brooks contrasts this view of left-controlled governments leading to altered
economic performance with that of left-controlled government performance with the
OECD countries. She first posits, in concordance with Kaufman and Segura-Ubiergo,
that leftist “governments may liberalize aggressively…to prove their credentials as
inflation fighters.”42 As Brooks continues, she contrasts this notion with the performance
of left-controlled governments in the OECD countries, arguing that transitional costs
40
Ibid, p. 421.
41
Kaufman, Robert R. and Segura-Ubiergo, Alex. Globalization, Domestic Politics, and Social
Spending in Latin America: A Time-Series Cross-Section Analysis, 1973-97. World Politics 53
(July 2001), p. 580.
42
22
between left and right governments are less significant in OECD countries. As a result,
“the core constituency concerns of left governments are diminished, leaving only the
powerful incentives for such governments to signal their credibility to market actors
through financial opening.”43 In Brooks’ view, left-controlled governments behave
systematically differently in Latin America than in OECD countries in terms of the
economic policies they implement and the economic outcomes of the decisions they
make in government. And given the above discussion, Latin American governments do
appear to alter their macroeconomic policies according to partisan control of government,
with implications for differences in economic outcomes as well. But if indeed partisan
control of government does lead to altered outcomes in Latin America, why might this be
the case?
For one, the political realities of Latin America reflect a past with marked
differences from the relatively recent histories of the OECD countries. While those well-
developed nations long since banished the specter of communism from their borders,
instead turning to market-oriented economic policies and growth strategies, socialist
revolutionary thought in Latin America remained in full force in many countries until the
1970s and 1980s (Chile and Peru, respectively), and even continues to the present with
the socialist governments of Venezuela, Ecuador, and Bolivia currently in power. The
OECD-centric literature on partisanship’s role in shaping policy and outcomes assumes
that state actors operate with the knowledge that for effective economic growth to result,
they must operate within certain institutional constraints. One in particular is the
structural dependence of the state on capital, a theory arguing that because governments
43
Ibid, p. 424.
23
are dependent on revenue from business taxation for survival, they must create conditions
favorable to capitalists to continue to invest in the economy; if they fail in that regard
then government will lose its financial capabilities to function.44 This theory will be
examined in greater detail in the following chapter.
But with the Latin American left’s up-until-recent love affair with socialist and
populist macroeconomic ideology, perhaps the drive towards the formation of a new
social order blinded their eyes to these institutional constraints. Even in countries where
previously revolutionary rhetoric has since moderated, the tendency for leftist
governments to favor policies of redistribution may simply be stronger. As populism has
such a strong tradition of appealing to poorer members of society throughout Latin
America, it would not be surprising to see politicians appealing to those poorer members
of society to continue offering the rhetoric of redistribution, as that political argument
still carries weight in the voting booth even after macroeconomic populism has been
proven by scholars as a failed economic growth theory. And while it may indeed be true
that neoliberal economic policies were necessary tools of the stabilization programs put
in place after populism’s failure, the evidence indeed indicates that neoliberal policies
have contributed to increased inequality in the region—since the 1970s, “every country
[the authors examined within Latin America], with the exception of Colombia in the
1980s and Mexico and Venezuela in the 1970s, has experienced an increase in the
concentration of income and wealth.”45
44
American Political Science Review, Vol. 82, No. 1 (Mar., 1988).
45
Hoffman, Kelly and Angel Centeno, Miguel. The Lopsided Continent: Inequality in Latin
America. Annual Review of Sociology, Vol. 29, 2003, p. 367.
24
Given this increased inequality, and the fact that poorer members of society did
experience real wage increases under macroeconomic populism (at least for a time),
parties of the left might have more success appealing to traditional notions of populist
macroeconomic policy in attempting to get elected. Concurrently, they may implement
policies to engage in redistributive government action as it would be seen by their
constituents as necessary to counteract severe levels of inequality. Therefore, in
evaluating whether partisanship does matter for Latin American economic policies and
outcomes, I remain agnostic as to whether politicians of the left do take into account
factors constraining OECD countries such as the structural dependence of the state on
capital. The factors described above might explain why left governments continue to
implement policies that favor redistribution and perform worse in the process, if the data
does indeed reveal that to be the case.
In evaluating this possibility, there are two distinct claims between which I must
distinguish: one is the notion of the left adopting different policies from the right, and the
other entertains the possibility that those left policies lead to different economic outcomes
than those on the right. There are three possible hypotheses related to the first claim:
Hypothesis 1A: The left adopts policies indistinguishable from those of the right.
Hypothesis 1B: The left adopts more redistributive and interventionist policies
than those of the right.
Hypothesis 1C: The left adopts more conservative policies than those of the right.
And within the second claim, there are three possible hypotheses as well:
Hypothesis 2A: The left produces macroeconomic outcomes indistinguishable

from those of the right.
25
Hypothesis 2B: The left produces more growth, less inflation, and less
unemployment than the right.
Hypothesis 2C: The left produces less growth, more inflation, and more
unemployment than the parties of the right.
There are of course other possible iterations of growth, inflation and unemployment that
will be tested, but I list the above three in order to broadly distinguish between largely
positive and negative macroeconomic outcomes. Given the above discussion, I argue for
a combination of hypotheses 1B and 2C, in other words that left governments in Latin
America will engage in more redistributive policies than those of the right, and that
accordingly they will produce poor macroeconomic outcomes in terms of growth, higher
inflation, and greater unemployment.
My logic in making this argument is as follows. Given the extreme populist
backlash seen in numerous Latin American countries against stabilization programs and
export-oriented economic strategies that limited social spending and curbed inflation at
the expense of unemployment, parties of the left in Latin America remain responsive to a
voting public that may not understand the negative economic implications involved in
policies such as wealth redistribution. In so doing, they may be more likely to engage in
economic action that would be detrimental to growth, sacrificing inflation in order to
achieve decreased unemployment, simply by virtue of the perceived demands of their
constituencies. Alternatively, parties of the right long since supported economic policies
of stabilization and of neoliberal, export-oriented growth trajectories. Given the fractured
nature of the Latin American electorate, where certain members of society earn near-first-
world livings and others live under vastly inferior means, it becomes less intuitive for a
political party to simply maneuver to the median voter, eschewing partisan goals in order
26
to take action that will ensure a balance between the needs of capitalists to feel confident
continuing to invest while recognizing the demands of a working class clamoring for
wage increases. If politicians are concerned with being elected to office, then they will
be responsive to a constituency calling for redistributive government action even if taking
that action may eventually lead to subpar economic performance.
Before answering the question on whether Latin American governments do indeed
ignore such structural limits as the state’s dependence on capital, and in order to better
distinguish between the reasoning for left governments performing differently than right
governments in Latin America, it is relevant to further examine the established literature
on the ways in which partisanship may or may not affect macroeconomic policy and
outcomes in the OECD countries. It is not my intention here to include the OECD
countries in my analysis as well, nor is it my intention to answer the partisanship question
in regards to the OECD countries. Scholars have expounded on the topic already to great
effect, and my exploration of that literature will serve as an understanding of
partisanship’s role in macroeconomic decision-making in OECD countries rather than a
challenge to that understanding. But as I formulate this study in an attempt to better
understand the ways in which partisan differences can lead to macroeconomic differences
in Latin America, it behooves me to critically engage with the substantive established
literature on the topic at large, rather than explore the topic through a purely Latin
American-centric lens.
Thus, in the following chapter I explore the larger school of thought in relation to
the possibility of partisanship affecting macroeconomic policies and outcomes. A clear
understanding of the scope and limits of the role of partisanship in economic decision-
27
making in OECD countries will guide my research and provide important insights into
why the claims I present here may be largely supported or refuted. Additionally, it may
provide insights for future scholars in determining why differences exist between Latin
America and the OECD countries regarding partisanship’s role in shaping
macroeconomic policies and outcome. With that in mind, I will now explore the
prevailing OECD-centric theories regarding the role of partisanship in shaping
macroeconomic policy and outcomes.
28
CHAPTER 3: Economic Effects of Left Partisanship in OECD Countries
For the purposes of this discussion (and indeed for the purpose of this thesis at
large), I will divide our conception of the party system into a dichotomy of left-
representing and right-representing interests, where parties of the left are generally more
representative of poor and labor interests and parties of the right are generally more
representative of capital-owning interests. This line of thinking has long existed in
political discourse, growing in prominence with the advent of Marxist theory—in
particular, Marx’s book Wage-labour, and Capital, where he describes the nuances of the
economic relationship at play between workers and the capitalists who hire them. 46 But
numerous other well-respected scholars examining the government’s role in shaping
macroeconomic outcomes have also presented their arguments within this paradigm—
Marx is far from alone in making this distinction. One pertinent example would be
scholars Adam Przeworski and Michael Wallerstein, who based their key argument
regarding the structural dependence of the state on capital (which I will be examining
shortly) on the economic distinction between wage earners and owners of capital. 47 Given
an ideological political-party breakdown along those lines, with exceptionally different
types of demands on the state found from workers versus business owners (or more
broadly, from rich versus poor), it is sensible to infer that political parties would use their
influence and power in government to enact macroeconomic policies most rewarding to
their constituents.
46
Marx, Karl. Wage-labour and Capital: Value, Price and Profit. International Publishers Co,
1935. Books.google.com (accessed January 30, 2009)
47
29
And indeed, scholars have long sought to reconcile competing political interests
in determining how the state distributes its resources. Douglas Hibbs conducted an
examination of macroeconomic policies and their outcomes in both the United States and
Great Britain, seeking to uncover if partisan differences really played a role in the
variation in outcomes. Hibbs paid particular attention to what he called “the unfavorable
trade-off between inflation and unemployment,” otherwise known as the Phillips curve
for the scholar Alban William Phillips, who first published work documenting the
oppositional relationship between the two economic variables.48 In so doing, Hibbs
tracked the degrees of inflation and unemployment when a given party was in power –
Democrats and the Labour party on the left, and Republicans and the Conservative party
on the right, for the United States and Great Britain, respectively. Hibbs predicted that
the leftist governments would prefer “relatively low unemployment at the expense of
high rates of inflation” while “comparatively low inflation and high unemployment
[would] characterize political systems dominated by center and right-wing parties.” 49 His
conclusions and evidence heavily supported his claim, and Hibbs determined with
confidence that “macroeconomic outcomes systematically covary with the political
orientation of governments.”50 In other words, the political orientation of the governing
party makes a statistically significant difference in terms of the types of policies and
economic outputs of a given nation. It is important to note, for the sake of distinguishing
Hibbs’ analysis from future theories to be discussed below, a central assumption of his
work—that “political authorities can (and do) influence the rate of unemployment and
48
Hibbs, Douglas A., Jr. Political Parties and Macroeconomic Policy. The American Political
Science Review, Vol. 71, No. 4 (Dec., 1977), p. 1467.
49
Ibid, p. 1468.
50
Ibid, p. 1475.
30
inflation by manipulation of monetary and fiscal policy.”51 This notion has since been
challenged, and I will examine those claims below. Nevertheless, his was an important
work that outlined persuasively why partisanship does matter for economic outcomes.
An interesting alternative to Hibbs’ argument, which focuses on tax rates rather
than inflation and unemployment, is found in the work of Allan Meltzer and Scott
Richard. In 1981, the two scholars published a groundbreaking article arguing that lower
productivity members of society (wage-earners, for example) desire higher tax rates
because of the net distributional effects of tax revenue in their favor. 52 Conversely, higher
productivity members of society (capitalists) desire lower tax rates because on a net scale
they pay more into the system than they receive in public good benefits. In Meltzer and
Richard’s words, these policy goals would lead to either an increase or decrease in the
size of government.53 Given that relatively better- and poorer-off members of society
have different motives for the distribution and management of national wealth, it is
natural to assume that a political party representing the wealthy with a controlling stake
of power will engage in macroeconomic action to ensure results most favorable to its
constituency. And indeed, Hibbs, who we discussed earlier, certainly predicted that
parties would pursue policies most in line with their ideological leanings. But while
Meltzer and Richard do find a tendency for individual voters to support policies and
politicians presumably most favorable to their particular self-interest, their larger and
most groundbreaking finding is that “the size of government is determined by the
welfare-maximizing choice of a decisive individual”—the median voter. 54 In other

51
Ibid, p. 1468.
52
Meltzer, Allan H. & Richard, Scott F. A Rational Theory of the Size of Government. The Journal
of Political Economy, Vol. 89, No. 5 (Oct., 1981), p. 914.
53
Ibid, p. 916.
54
Ibid, p. 924.
31
words, one voter, based on the relation of mean income (the average income of society at
large) to his own, will have the decisive vote on whether to increase or decrease the size
of government and by extension alter macroeconomic outcomes.
This claim does not inherently lead to the conclusion that political parties do not
matter in terms of macroeconomic outcomes. As William Clark outlines in his upcoming
textbook, when combined with democracy the Meltzer-Richard theory “introduces the
possibility that the poor will seize the property of the rich through a redistributive tax
scheme,” an action more likely taken by a party of the left (though of course, both parties
may have incentive to take this action).55 The point of Meltzer and Richard’s piece is not
to take away all notions of political agency in defining outcomes, but rather to note that
political parties’ actions in the economic arena (specifically in the area of tax policy for
Meltzer and Richard’s purposes) are limited to those policies which are acceptable to the
median voter. When the median voter makes a wage substantially lower than that of the
mean of all wages in society, then that median voter will tend to support redistributive
policies. Yet just as the theory does not preclude political party agency, it does lead to the
conclusion that for a given political party to exercise power, it must cater to the median
voter—and this occurs whether that political party be from the left or right side of the
spectrum. This theory is also supported by Anthony Downs, who wrote succinctly that
“government gives voters what they want … for the government is primarily interested in
people’s votes.”56 The grand implication here is that due to attempts to appease to the
median voter, both parties will present policies that converge towards largely similar
outcomes—or in other words, re-electable macroeconomic outcomes.

55
Clark, William R. Chapter 9, Does Democracy Make a Difference? Untitled. CQ Press, 2008, p. 319.
56
Downs, Anthony. Why the Government Budget is Too Small in a Democracy. World Politics, Vol.
12, No. 4, (Jul., 1960), p. 546.
32
Yet perhaps partisan desires to enact macroeconomic policies most favorable to a
party’s constituency are limited by more than just electoral factors such as the median
voter phenomenon described above. Scholars Adam Przeworski and Michael Wallerstein
confirmed an even more pressing claim on limiting the actions of government, which
structural Marxists had long been asserting—the government’s need for capital in order to
effectively function.57 Just as in the Meltzer-Richard theory, proponents of the theory of
the structural dependence of capital divide society between wage earners and owners of
capital, but their argument goes further than simply arguing that the median voter’s will is
prevalent. Rather than curtailing policy to the median voter, the theorists argue that “all
social groups are constrained in the pursuit of their material interests by the effect of their
actions on the willingness of owners of capital to invest.” 58 As this constraint runs
throughout society, it additionally constrains government. As the theory goes, “the
pursuit of any [government] objectives that require material resources places
governments in the situation of structural dependence” on capitalists to continue to
invest, because the government relies on revenues from the fruits of that investment in
order to function.59 If the government pursues policies to the point that capitalists decide
to disinvest from the economy, then wage-earners relying on capitalist investment for
continued employment will lose their jobs, and will punish that government by voting
them out of power. Przeworski and Wallerstein explain this tendency well: “vote-
seeking politicians are dependent on owners of capital because voters are.”60 So the
theory continues, if government relies on capital both for the purposes of funding its own
57
58
Ibid, p. 12.
59
Ibid, p. 12.
60
Ibid, p. 12.
33
objectives as well as for maintaining the employment of those who would keep that
government in power, then government will continue to exercise macroeconomic policies
that are consistent with the policy preferences of the investing class.
In examining this claim, Przeworski and Wallerstein did not in fact determine that
the state is structurally dependent on capital in the static sense—meaning, structural
dependence would not occur when assuming that non-state actors only readjust their
preferences once the state takes action on the macroeconomic scale. 61 Yet before making
any conclusions regarding the implications of this finding for partisan attempts at
manipulating macroeconomic policy to further their interests, Przeworski and Wallerstein
went one step further. Instead of stopping after examining the responses of non-state
actors (capitalists, wage-earners) to the actions of the state, the two authors evaluated the
ways in which non-state actors would respond to mere announcements of government
intentions to engage in certain types of macroeconomic action. Specifically, they
concluded that when leftist governments discussed engaging in redistributive policies, the
mere “anticipation of this moment causes a fall in investment and is costly to wage
earners’ welfare in the period before the tax increase goes into effect.” 62 So while the tax
itself on the consumption of shareholders’ income may not lead to decreased investment,
the anticipation of that policy’s implementation would cause capitalists to disinvest, thus
rendering negative macroeconomic outcomes for the very people (the wage-earners) that
the leftist government in power was trying to empower. Therefore, because the state is
inherently constricted by the threat of disinvestment of capital from the economy, it must
engage in macroeconomic action in order to maintain the confidence of capitalists and

61
62
Ibid, p. 23.
34
keep them invested in the economy. This limitation greatly constricts the ability of states
to implement overly redistributive policies, as political parties representing labor must
balance their desire for higher wages with the knowledge that over-distribution of
national wealth will lead to disinvestment, and thus fewer economic opportunities for
wage-earners in the future.
The preceding discussion may initially lead to some confusion. It appears as
though there are indeed partisan interests from either the left or right side of the political
spectrum seeking to use their power in government to enact macroeconomic policies
most favorable to their constituents. But at the same time, it is evident that numerous
constraints exist on their capabilities to put those policies into place. As Meltzer and
Richards and Downs argued, the parties must limit those policies to those deemed
acceptable by the median voter. And additionally, Przeworski and Wallerstein
demonstrated that parties must limit those policies to those which would maintain a
climate of business confidence in investment—if overly redistributive policies were even
suggested, then capital would tend to disinvest, leading to unfavorable macroeconomic
outcomes both for society at large and in particular for the wage earners most often
targeted as benefactors of that redistributive macroeconomic policy. So the question
arises: To what extent, if at all, do differences in partisan representation in government
really affect macroeconomic outcomes? Given the above discussion, it is evident that
parties seek to implement policies most favorable to their constituents, but there
simultaneously exist numerous constraints to such action in favor of more homogenous
decision-making. Evidently, structural and electoral constraints exist such that it remains
35
unclear if differences in partisan control of government really do lead to variance in
macroeconomic outcomes.
In attempting to rectify this apparent impasse between the desires of parties to
implement partisan policies and the constraints brought about by the median voter and
the dependence of the state on capital, scholars R. Michael Alvarez, Geoffrey Garrett, and
Peter Lange added a key element to the equation. Specifically, they posited that a
significant degree of variance in the success or failure of the use of partisan-related
macroeconomic policy could be found by controlling for the degree to which labor
movements were organized and mobilized within society (or were in their words,
“encompassing”).63 When labor movements were indeed encompassing, “leftist
participation in governments was strongly associated with higher rates of growth and
with slower increases in inflation and in unemployment levels.”64 Conversely, “leftist
participation had deleterious consequences for economic performance … in countries
where union movements were less centralized.”65 The opposite was found to be true for
rightist governments; with high degrees of labor encompassment the government tended
to underperform in terms of macroeconomic outcomes, while it performed well when
labor was relatively unorganized. Accordingly, positive macroeconomic outcomes were
possible under either leftist or rightist governments, depending upon the degree to which
labor movements were encompassing. The authors additionally found that this
phenomenon occurred on a sliding scale; high degrees of encompassment would lead to
either more favorable macroeconomic outcomes for leftist governments or more
63
Alvarez, R. Michael et al. Government Partisanship, Labor Organization, and Macroeconomic
Performance. The American Political Science Review, Vol. 85, No. 2 (Jun., 1991), p. 544.
64
Ibid, p. 549.
65
Ibid, p. 549.
36
deleterious outcomes for rightist governments.66 This argument is known as the social
democratic corporatist model, and it will be referred to throughout this section as the
SDC hypothesis.
The authors thus argued that it was possible for governance from either the left or
right to lead to macroeconomic outcomes that were favorable to society as a whole. But
they additionally found that by working within the framework of labor encompassment,
parties were able to enact policies specifically desired by their constituency while still
maintaining overall positive macroeconomic outcomes. The explanation for this
capability lies in the same notion of expectation regarding policy choices as was found in
the work of Przeworski and Wallerstein (recall their conclusion that the mere expectation
of redistributive policy led to capitalist disinvestment from the economy). For instance,
in a society with high degree of labor encompassment, “the pursuit of welfarist policies
by leftist government is likely to generate voluntary wage restraint” by labor because of
an improved understanding of the negative effects of over-redistribution (capitalist
disinvestment, in particular).67 So a leftist government with knowledge of the restraint of
the encompassed union would be better able to pursue its partisan preferences for more
interventionist policies without sparking disinvestment by capitalists because of
confidence generated by the “stable political economic environment.” 68 In this situation,
the expectations of behavior for labor, government, and capital are all clearly known and
implicitly accepted, and this stability provides confidence for capitalists to continue to
66
Ibid, p. 551.
67
68
Scharpf, Fritz W. Economic and Institutional Constraints of Full-Employment Strategies: Sweden,
Austria, and West Germany, 1974-1982. In Order and Conflict in Contemporary Capitalism, ed.
John H. Goldthorpe, Clarendon Publishing, Oxford, 1984.
37
invest as they can comfortably assume that overzealous redistribution of their capital will
not occur. In alternative cases, when leftist governments were paired with low labor
encompassment or rightist governments with high labor encompassment, the outcome
was “deleterious consequences for economic performance” because of the negative
expectations for business confidence that either case would provide.69
The work of Alvarez, Garrett, and Lange was important because it successfully
outlined parameters under which partisan representation in government could affect
macroeconomic outcomes—and importantly, parameters under which partisan policies of
the left could generate positive returns in terms of macroeconomic outcomes (the
parameters being dependent upon the degree of labor encompassment). The picture on
partisan effects on macroeconomic outcomes thus becomes a bit clearer. But in response
to Alvarez et al, William Clark argued in his book Capitalism, Not Globalism that while
the SDC hypothesis made compelling claims, it neglected to mention three features of
government of utmost importance to macroeconomic outcomes: the degree of capital
mobility, the type of exchange rate regime, and the degree of central bank
independence.70 These three economic factors make up what political economists often
refer to as the “unholy trinity” of institutional constraints whereby it is impossible for
governments to have all three policy tools of a fixed exchange rate, free capital
movement (commonly referred to as capital mobility), and an independent monetary
policy.71
69
70
2003, p. 105.
71
Hellwig, Timothy T. Interdependence, Government Constraints, and Economic Voting. The
Journal of Politics, Vol. 63, No. 4 (Nov., 2001), p. 1146.
38
The introduction of these three policy variations has significant implications for
the discussion on partisan variation on macroeconomic outcomes, in that an independent
central bank makes policy decisions (in particular regarding interest rates) that could lead
to differing macroeconomic outcomes on unemployment and inflation, without being
immediately answerable to politicians of either party. And exchange rate fluctuations and
increased capital mobility might extend the state’s dependence of capital beyond purely
national borders. Whatever the immediate implications of these three pillars of
macroeconomic policy, it is evident that analysis of the SDC hypothesis must include an
examination of the ways in which degrees of labor-encompassment affect policy
outcomes within the ‘unholy trinity’ framework. In response to this limitation, Clark
sought to do exactly that.
Clark began by introducing a measure of capital mobility into the SDC model,
and found that left-governments indeed were associated with higher unemployment when
labor encompassment was low, but only when capital markets were highly open. 72 Clark
was not the first scholar to make this distinction; indeed, Geoffrey Garrett intended to do
exactly that—but Clark found a limitation in Garrett’s methodology and corrected for it
in his model.73 In terms of inflation, Clark found no correlation between the model’s
predictions on labor encompassment and leftist governance in regards to inflation, no
matter what the degree of capital mobility. In fact, he found that leftist governance was
“associated with a decrease in inflation only if labor-market institutions are weak and
decentralized,” exactly the opposite conclusion one would expect given the SDC
72
2003, p. 117.
73
Garrett, Geoffrey. Partisan Politics in the Global Economy. Cambridge Univ. Press, New York,
1998.
39
hypothesis (italics his).74 Clark went on to conduct similar tests when controlling for
various degrees of exchange rate openness and central bank independence, and once
again the evidence in favor of the SDC hypothesis was decidedly mixed in places—and
indeed, “when one controls for the modifying effects of exchange rate regime … all
evidence for the SDC hypothesis disappears entirely.” 75 All in all, Clark’s main assertion
regarding partisanship’s role in the economy is that “if partisan differences in
macroeconomic performance exist, these differences appear to be sensitive to context in
ways that we do not fully understand.”76 Because contrary to the literature on
globalization that argued that globalization’s expansion was leading to a “withering away
of the state” that was decreasing the capabilities of partisan actors to choose
macroeconomic outcomes, Clark found little evidence that partisan differences ever
existed in the first place.77
Clark’s investigation was convincing and thorough in its methodological
approach. If any limitations do exist in regards to the universality of his findings, one in
particular might be that all of his data was derived from a pool of OECD (Organization
for Economic Co-Operation and Development) countries, all of which include the world’s
most economically developed nations: the lowest current per capita gross domestic
product (GDP) when adjusted for purchasing power parity (PPP) among the countries
sampled78 was $28,500 for New Zealand, while the highest per capita GDP was $57,500
74
2003, p. 118.
75
Ibid, p. 139.
76
2003, p. 140.
77
Ibid, p. 140.
78
Sampled countries include: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Great
Britain, Greece, Ireland, Italy, Japan, Netherlands, New Zealand, Norway, Spain, Sweden, United
40
for Norway.79 Those numbers are obviously not indicative of incomes across the rest of
the world, and in particular within Latin America. Interestingly, the other empirical
studies previously cited in this chapter also limited the scope of their analysis to
developed industrial economies. Alvarez et al, the authors of the SDC hypothesis, limited
their analysis to the developed countries found in the pool used by Clark. Przeworski and
Wallerstein’s explanation was theoretical in nature, but in explaining their positions the
authors used examples from countries such as Germany and France. The trend continues
in Meltzer and Richard’s work, who when discussing the rise in tax payments relative to
income cited how “the share has increased in all countries of western Europe and North
America during the past 25 years,”—certainly not a line of thought one would
automatically extend universally.80 Clark himself writes as a possible conclusion that
perhaps “the SDC framework is not the appropriate framework for analyzing the politics
of macroeconomic policy in OECD countries,” leaving open the possibility that the
framework would be appropriate in other instances. 81 And in his concluding words, he
argues that “if partisan differences in macroeconomic performance do exist, [then] these
differences appear to be sensitive to context in ways that we do not fully understand.”82
In elucidating these distinctions, it is not my intention to discredit the veracity of
Clark’s conclusions—within the framework of OECD countries, his analysis has shown
that extremely little evidence exists suggesting that partisan differences do play a role in
States, and West Germany.

79
CIA World Factbook, Rank Order – GDP – per capita (PPP)
https://www.cia.gov/library/publications/the-world-factbook/rankorder/2004rank.html
80
Meltzer, Allan H. & Richard, Scott F. A Rational Theory of the Size of Government. The Journal
of Political Economy, Vol. 89, No. 5 (Oct., 1981), p. 914.
81
2003, p. 125.
82
Ibid, p. 140.
41
altering economic outcomes, and the complexity of his model is thorough and convincing
in its approach. But before simply accepting on face value that these conclusions
automatically apply to the rest of the world, the literature on partisanship and
macroeconomic outcomes would benefit from a systematic examination of Clark’s claims
in regards to the developing world, and in particular Latin America. I began this thesis
discussing attempts to understand the reasons behind why some countries are rich and
other countries are poor. I examined the literature regarding partisanship and
macroeconomic outcomes both within Latin America and at large, in an attempt to delve
into that timeless question. But in discussing disparities between rich countries and poor,
it is only natural to study both rich and poor countries in arriving at conclusions about
partisan control over the macroeconomic performance of those countries. Within that
developing world, the region of Latin America provides a natural starting point for
analysis.
Thus, the following chapter will engage analytically the question of whether the
partisan orientation of government can affect economic performance various Latin
American countries. I will first discuss my dependent and independent variables in
greater detail. I will then outline in detail the analytical model that will be used in the
analysis of those Latin American nations. After running a series of regressions on the
data within the bounds of the analytical model, I will present my findings and explain
them within the context of the previous academic discussion regarding the possible role
of partisan differences leading to variance in macroeconomic performance indicators. I
will then offer my conclusions, explain some limitations inherent to my study, and
suggest avenues for future research.
42
CHAPTER 4: Data and Empirical Analysis
Introduction
The preceding chapters have served to establish discrepancies within the accepted
field of knowledge regarding the role that partisan orientation of government plays in
affecting macroeconomic policy and outcomes. Within the literature specifically
regarding Latin America, case study analysis does show that partisanship affect policies
and outcomes—the instance of the rise of populism in Chile during the 1970s serves as a
fitting example. But individual instances are insufficient for attempts to understand the
broader effects that partisanship may have across an entire region. Additionally, while
some scholars have found partisan differences to play a role in altering the specificities of
government policy, they fell short of making a compelling argument regarding
partisanship’s broader macroeconomic effects as measured both within and across
countries. And within the literature that limited its analysis to OECD countries, the
results are ambiguous as well. While Hibbs outlined instances where partisanship had
quite significant effects on macroeconomic outcomes, numerous subsequent scholars
uncovered limitations of his argument (structural dependence of the state on capital, for
instance), and indeed others like William Clark issued near-complete refutations of the
Hibbsian argument. And while Clark argues convincingly that partisan effects play little
role in shaping macroeconomic policy and outcomes for OECD countries, it remains an
open question as to whether his logic can be accurately applied in the same manner to
countries in the developing world such as those found in Latin America.
Given these discrepancies, this section will examine in greater analytical detail the
role that partisan orientation of government has played on macroeconomic performance

43
in Latin American countries in particular. Specifically, I will take a measure of
partisanship as an independent variable, testing them against dependent variables
measuring various elements of macroeconomic policy and outcomes. These elements
will be outlined in greater detail shortly. In conducting this analysis, I will undertake a
panel-corrected standard errors regression of the data. I use this specific type of time-
series cross-sectional analysis, rather than a basic time-series cross-sectional analysis, due
to instances where data in a given year is a function of similar data from the previous
year. For instance, data on budget surpluses in 2000 would be a function of the degree to
which the budget was balanced in 1999. In examining the data, it is necessary to remove
such auto-correlation in order to ensure accuracy of results, and panel corrected standard
errors analysis does just that. Additionally, the use of basic time-series cross-sectional
analysis leaves open the possibility for heteroskedasticity, whereby an external variable
previously unrecognized by the model could be affecting all of the countries in the
sample differently, as well as my variable of interest (in this case, left partisanship).
Panel-corrected standard errors analysis takes this possibility into account, thereby
increasing the accuracy of my results.
Variables
Concurrent with the theme of this thesis, my independent variable will be an
index of partisanship. I codify control of government as either left (0) or non-left (1), a
metric which includes both centrist and right-leaning parties. In creating this metric I
altered the formulation of a partisan variable created by Hallerberg and Marier, in which
the authors created a different codification for left, centrist, and right control of
44
government (specifically, the executive branch).83 For my analysis, both instances of
centrist and right control of the executive were coded as non-left (1). The use of the
partisanship of the executive as a proxy measurement for the partisanship of the
government varies slightly from previously-used measurements of partisanship,
particularly within the OECD literature, that largely examines the partisan orientation of
the cabinet controlling government. However, while the majority of the OECD countries
studied feature parliamentary government, Latin America is largely characterized by
presidential systems of governance, where a large degree of power is concentrated within
the confines of the office of the executive. Accordingly, a measure of partisanship
codifying the partisan orientation of the executive is therefore appropriate for the
purposes of this study.
My dependent variables will be used to measure both policies and outcomes.
Specifically, the dependent variable utilized as a proxy for economic policy will be a
measure of budget surplus as percent of GDP. I utilize this specific metric because more
expansionist policies would presumably involve increased government expenditure,
which could be represented through a tendency against budget surpluses. Leftist
governments elected on the promise of engaging in redistribution may face greater
pressures from their constituencies to take such redistributive action, increasing the
likelihood of spending more than their centrist and right counterparts. In terms of
measuring the effects of partisanship on macroeconomic outcomes, I will examine three
important metrics: GDP growth, inflation, and unemployment. The inflation variable
will be regressed after natural log has been applied to it. And for unemployment, I use
83
Hallerberg, Mark and Marier, Patrick. Executive Authority, the Personal Vote, and Budget
Discipline in Latin American and Caribbean Countries, American Journal of Political Science, Vol.
48, No. 3 (Jul. 2004)
45
urban unemployment data as the datasets were more complete than with a measure of
total unemployment.
Additionally, I will introduce a variable which could produce interesting effects:
the degree to which voters elect politicians by means of personal vote ballots. Personal
vote ballots vary from list vote ballots in that citizens vote for individual candidates
rather than for a specific party. My hypothesis predicts that as voters elect leftist
politicians, those politicians will in turn put in place economic policies that will lead to
poorer-performing economic outcomes as measured in terms of growth, inflation, and
unemployment. But perhaps incentives to cultivate personal vote could be an intervening
variable. If indeed the political ideology of the party in power determines policy (which
is my hypothesis), then in instances without incentives to cultivate the personal vote one
would expect that parties would simply implement their preferred policies. In the case of
left-wing governments, I would argue that these policies would tend to be
redistributionist in nature. But in instances where personal vote systems are indeed
apparent, politicians representing a particular ideology may be more likely to
compromise that belief in favor of getting elected, perhaps instead moving towards a
median voter that would support less redistributionist policies.
There is, of course, another possible take on the addition of the personal vote
ballot into the model. If we assume that candidates have greater incentive to appeal
directly to constituent interests when personal vote occurs, then perhaps that median
voter in Latin America has a tendency to support more redistributionist policies (indeed,
this trend may occur regardless of political party orientation). In such an instant as this,
increased personal vote might actually increase the likelihood of budget deficits. And
46
alternatively, without a personal vote ballot, results may be different by virtue of citizens
only voting for political parties as opposed to individual candidates. Rather than needing
to engage in specifically redistributive policy (because the median voter would dictate
this to be so), leftist parties could espouse their party principles in terms of rhetoric, but
in practice could behave in a manner more consistent with the predictions of Clark and
Przeworski and Wallerstein—rather, that there would be little if any degree of difference
in terms of economic performance, because specific policies will be less likely directly
implemented for immediately clientelistic purposes. Politicians may lose their original
incentive to engage in clientelistic policy action (an incentive created by means of the
personal vote) when their survival in office is more dependent on following party orders
than on catering to the whims of individual voters. Therefore, systems without personal
vote ballots may feature economic performance unaffected by the partisan orientation of
government. In other words, partisanship may only affect economic performance when
personal vote ballot systems are utilized. These possibilities will also be tested.
Data
The data used for this study was collected from a few principle sources. The
codification of partisanship was taken from the dataset of the Hallerberg and Marier
piece, with the codification altered as previously described. Data on the budget surplus
variable (represented by government’s budget surplus as percent of GDP), in addition to
economic growth and inflation numbers are all taken from the Inter-American
Development Bank.84 In terms of data for unemployment, I use urban unemployment
data from the Economic Commission for Latin America and the Caribbean. There are
84
Hallerberg, Mark and Marier, Patrick. Executive Authority, the Personal Vote, and Budget
Discipline in Latin American and Caribbean Countries, American Journal of Political Science, Vol.
48, No. 3 (Jul. 2004), p. 580.
47
some years for which certain countries did not report data; however, this urban
unemployment metric was the most complete available in terms of unemployment, and it
remains highly correlated with total unemployment. Data on personal vote is based on
the codifications of Hallerberg and Marier, and is formed on a scale from 0 to 1, with 0
indicating no personal vote at all and 1 indicating an entirely personal-vote-centric
system.
Model
The model argues that a given variable, for example budget surplus, is affected
first by the budget surplus or deficit of the previous year and then additionally by the
partisan ideology of the governing party. Specifically, I hypothesize that left ideology of
the government will lead to a negative value for budget surplus (in other words, a budget
deficit). But the model changes when including the personal vote variable into the
equation. In so doing, when personal vote is equal to zero the model should remain
unchanged. But when personal vote is equal to one (or any other non-zero number
between zero and one), the model takes on additional complexity. Expressed in
mathematical terms, the simple, unconditioned model appears as
Budget Surplusi = α0 + α1Budget Surplusi-1 + α2Left Partisan Orientation + Error
where i represents a given year between 1988 and 1997, so long as personal vote is zero.
In future equations, I will simplify the variables Budget Surplus as S, Left Partisan
Orientation as L, and Error as E. But the equation expands when personal vote gains a
non-zero value between zero and one to
Si = β0 + β1Si-1 + β2L + β3Personal Vote + β4L*Personal Vote + E
48
in order to include the interaction effects of the personal vote variable on left
partisanship. Returning for a moment to my primary hypothesis, I argue (at least when
personal vote is equal to zero) that left government should affect the coefficient of the
budget surplus variable. If my hypothesis is correct and left partisanship indeed leads to
budget deficits rather than surpluses, then the coefficient of L should have a negative
value. If I am incorrect and left partisanship actually leads to bigger surpluses, then the
coefficient of L should have a value greater than zero.
If indeed the addition of the personal vote variable dampens the effects of left
partisanship on budget balance, then as personal vote increases, we should expect the
effect of partisanship to decrease, and for the relationship between partisanship and
budget surpluses, for example, to trend towards statistical insignificance. In order to test
this, I will run a linear combination of the two coefficients at play: left partisanship, and
left partisanship multiplied with the personal vote. By running this test, I am able to
determine at which point personal vote achieves statistical significance in decreasing the
effect that partisanship has on budget balance. In so doing, I will multiply the left
variable with both personal vote and different factors of .1 (for example .2, .3, .4, etc.).
My data on personal vote is listed on a range from 0 to 1, with 0 implying no personal
vote and 1 implying that a method of election entirely based on personal vote. By
utilizing this linear combination test I can determine the level (.5, for example) at which
the personal vote variable achieves statistical significance for decreasing the effectiveness
of left in affecting budget balance.
I will conduct the study, and present the results, in the following manner. I will
first examine the interaction effects of left partisan orientation of government on budget
49
surpluses, my proxy for economic policy. I will next examine the effects of left partisan
orientation on growth, followed by inflation and then unemployment. These variables
will serve as proxies for economic outcomes. These examinations will test the first,
unconditioned model as it exists without inclusion of the personal vote variable. Next, I
will examine the conditioned model including both the personal vote variable and its
interactions with left partisanship. I will first examine the effects of the personal vote’s
inclusion on budget surpluses, followed next by growth, and then inflation and
unemployment. I begin with a test of the effects of left partisanship on budget surpluses,
ignoring for a moment the personal vote variable.
To do so, I run the panel-corrected standard errors regression of budget surplus
with left partisanship, utilizing a time lag in order to eliminate any auto-correlative
effects. There is no statistical significance between left partisanship and budget surpluses
initially, though there is a negative coefficient for left, implying that left partisanship may
have some negative effect on budget surpluses. But perhaps the analysis is still
incomplete. By adding year dummy variables, I am able to see if there is significance
when controlling for specific years that may alter the accuracy of the results. After re-
running the model with year dummy variables included, left partisanship’s effects on
budget surplus remain statistically insignificant, though again the left coefficient is
negative. I then add country variables to the model, such that both year and dummy
variables are included in the regression. In this instance, there is positive statistical
significance at 5% for Chile and the Dominican Republic and negative statistical
significance for the Bahamas, Guatemala, Honduras and Venezuela; there is negative
statistical significance at 1% for Costa Rica. Yet there is no statistical significance for the
50
actual broad effects of left on budget surplus across the entire sample (again the
coefficient of left partisanship is negative). To determine if the year dummy variables
could be outliers, I then re-run the regression using only country dummy variables but
without year dummy variables. Again, the countries that were previously statistically
significant remain statistically significant—save Guatemala, which actually loses
statistical significance for left’s effect on budget surplus. Once again, the coefficient of
left partisanship is negative, but statistically insignificant. Left partisanship does not
appear to strongly affect budget surpluses at a level of statistical significance.
Table 1: Left’s Effects on Budget Surplus; No Interaction with Personal Vote

Regressed first alone, then with year dummies, then year and country dummies, then
country dummies
(1) (2) (3) (4)
Budget Surplus as % of GDP

left -0.350 -0.334 -0.419 -0.480
(0.874) (0.874) (0.902) (0.959)
L. Budget Surplus as % of GDP 0.518 0.524 0.255 0.261
(0.218)* (0.229)* (0.287) (0.272)
y89 0.171 -0.322
(0.740) (0.585)
y90 -0.191 -0.164
(0.514) (0.487)
y91 0.250 0.347
(0.685) (0.539)
y92 -0.607 -0.378
(0.658) (0.577)
y93 -0.260 -0.174
(0.674) (0.539)
y94 0.157 0.158
(0.587) (0.478)
y95 0.128 0.306
(0.413) (0.587)
y96 -0.745 -0.554
(0.443) (0.606)
bahamas -0.859 -0.843
(0.335)* (0.337)*
barbados -0.941 -0.903
(1.679) (1.688)
belize -1.954 -1.938
(1.327) (1.319)
bolivia -0.639 -0.533
(0.535) (0.631)
51
brazil -4.469 -4.470
(3.299) (3.287)
chile 2.514 2.504
(1.223)* (1.157)*
costaric -2.195 -2.136
(0.629)** (0.577)**
columbia -0.727 -0.715
(0.701) (0.698)
domrep 1.565 1.563
(0.670)* (0.621)*
ecuador 1.032 1.098
(1.690) (1.708)
elsalvad -0.759 -0.743
(0.494) (0.493)
guatemal -0.461 -0.404
(0.206)* (0.302)
guyana -5.209 -5.076
(5.293) (5.181)
honduras -2.772 -2.742
(1.122)* (1.083)*
jamaica 1.356 1.409
(1.688) (1.698)
mexico 1.013 1.085
(0.951) (0.988)
nicaragu -6.271 -6.285
(7.678) (7.653)
panama 1.296 1.350
(3.462) (3.405)
paraguay 1.659 1.656
(1.442) (1.403)
peru -0.085 -0.058
(0.198) (0.184)
suriname -4.465 -4.462
(4.641) (4.660)
trinitob 0.049 0.145
(0.512) (0.495)
uruguay -0.337 -0.336
(0.761) (0.762)
venezuel -0.786 -0.818
(0.363)* (0.417)*
Constant -0.593 -0.467 -0.515 -0.606
(0.628) (0.621) (0.599) (0.337)
Observations 185 185 185 185
Number of country 25 25 25 25
Standard errors in parentheses
* significant at 5%; **
significant at 1%
I then repeat the above testing process for the variables serving as proxies for
macroeconomic outcomes—those of growth, inflation, and unemployment. I first
52
analyze the effects of left partisanship on growth, once again running a panel-corrected
standard errors regression. With no dummy variables, there is no statistical significance
for left’s effects on growth, and the coefficient for left is negative. With just year dummy
variables included, there is again no statistical significance for the effect of left on growth
(though the coefficient is once again negative), but there is negative significance for the
years 1989, 1990, and 1995. I then add country dummy variables. In this instance, left is
again negative but not statistically significant. There is negative statistical significance
for 1989 and 1990, as well as strong negative statistical significance (at 1%) for Bahamas
and Uruguay, and negative statistical significance (at 5%) for Barbados, Paraguay, and
Peru. Chile is positive and statistically significant at 5%. I then run the regression with
just country variables but without year dummy variables. Again, the left coefficient is
negative but statistically insignificant. There is positive country significance at 5% for
Chile, negative country significance at 5% for Paraguay and Peru, and negative country
significance at 1% for Bahamas and Uruguay. In this instance, there is some evidence of
left partisanship leading to decreased growth within certain years and countries.
Table 2: Left’s Effects on Growth; No Interaction with Personal Vote

country dummies
(1) (2) (3) (4)
GDP Growth
left -0.856 -0.698 -1.164 -1.556
(0.692) (0.632) (1.000) (1.105)
L. GDP Growth 0.397 0.392 0.280 0.288
(0.126)** (0.129)** (0.147) (0.153)
y89 -2.081 -2.157
(0.724)** (0.640)**
y90 -2.033 -2.153
(0.678)** (0.651)**
y91 -0.507 -0.667
(0.740) (0.655)
y92 -0.319 -0.313
(0.733) (0.695)
53
y93 -1.230 -1.133
(0.754) (0.761)
y94 -0.104 -0.111
(0.782) (0.751)
y95 -2.290 -2.055
(0.968)* (0.910)*
y96 -1.046 -1.093
(0.997) (0.925)
bahamas -2.409 -2.391
(0.429)** (0.419)**
barbados -2.083 -1.936
(1.026)* (1.101)
belize 0.906 0.880
(1.566) (1.527)
bolivia 0.477 0.640
(1.344) (1.415)
brazil -1.578 -1.568
(1.417) (1.449)
chile 2.728 2.684
(1.213)* (1.261)*
costaric 0.335 0.544
(0.999) (1.069)
columbia -0.422 -0.432
(0.889) (0.866)
domrep -0.204 -0.207
(2.626) (2.656)
ecuador -0.196 0.189
(1.578) (1.652)
elsalvad 0.391 0.376
(1.153) (1.139)
guatemal 0.112 -0.479
(0.412) (0.633)
guyana 1.786 2.174
(1.500) (1.585)
honduras -0.631 -0.637
(0.493) (0.522)
jamaica -0.921 -0.568
(1.912) (1.926)
mexico 0.399 0.795
(1.629) (1.665)
nicaragu 0.092 -0.512
(1.012) (1.055)
panama 1.640 1.809
(1.964) (1.700)
paraguay -0.805 -0.812
(0.409)* (0.379)*
peru -0.706 -0.601
(0.326)* (0.235)*
suriname -0.329 -1.051
(2.002) (2.135)
trinitob -1.604 -1.564
(1.552) (1.526)
uruguay -0.556 -0.556
54
(0.105)** (0.083)**
venezuel -1.079 -1.299
(3.958) (3.821)
Constant 2.409 3.480 4.187 3.088
(0.808)** (0.884)** (0.702)** (0.811)**
Standard errors in * significant at 5%; ** significant at 1%
parentheses
I next analyze the effects of left partisanship on inflation, once again running a
panel-corrected standard errors regression. With no dummy variables, there is statistical
significance for left’s effects on inflation, with the left coefficient as positive. This would
suggest that leftist governments preside over higher inflation. But I continue the
regressions, now with dummy variables included. With just year dummy variables
included, there is again very high positive statistical significance for the effect of left on
inflation, and there is negative year significance for the years 1989 and 1993 at 1%, and
positive year significance for 1990 at 1%. I then add country dummy variables. In this
instance, left is now negative and no longer statistically significant. There is negative
statistical significance for 1989, 1993, and 1996, and positive statistical significance for
1990 and 1992. There is strong positive statistical significance (at 1%) for Bahamas,
Barbados, Brazil, Chile, Colombia, Dominican Republic, El Salvador, Guyana,
Honduras, Jamaica, Mexico, Nicaragua, Paraguay, and Peru and positive statistical
significance (at 5%) for Guatemala. Panama is the only country that has negative
statistical significance at the 1% level. I then run the regression with just country
variables but without year dummy variables. In this instance, the left coefficient is
positive but not statistically insignificant. No countries gained or lost statistical
significance, though statistical significance dropped from 1% to 5% for Bahamas. Left
55
partisanship appears to have a statistically significant positive effect on inflation,
meaning that left partisanship is statistically significant for increasing inflation.
Table 3: Left’s Effects on Inflation; No Interaction with Personal Vote

country dummies
lncpi (1) (2) (3) (4)
Natural Log
Consumer Price
Index
left 0.227 0.207 -0.034 0.039
(0.049)** (0.054)** (0.144) (0.110)
LN Cons. Price Index 0.345 0.360 0.106 0.110
(0.070)** (0.064)** (0.087) (0.102)
y89 -0.185 -0.088
(0.071)** (0.045)*
y90 0.216 0.286
(0.034)** (0.033)**
y91 0.063 0.176
(0.063) (0.073)*
y92 0.145 0.239
(0.088) (0.071)**
y93 -0.374 -0.261
(0.086)** (0.069)**
y94 -0.082 -0.087
(0.087) (0.056)
y95 -0.039 -0.051
(0.042) (0.043)
y96 -0.060 -0.068
(0.050) (0.019)**
bahamas 0.180 0.179
(0.070)** (0.070)*
barbados 0.241 0.217
(0.051)** (0.043)**
belize -0.144 -0.143
(0.270) (0.275)
bolivia 0.454 0.421
(0.283) (0.292)
brazil 0.840 0.838
(0.178)** (0.179)**
chile 0.622 0.621
(0.146)** (0.145)**
(0.275) (0.279)
columbia 0.672 0.670
(0.163)** (0.164)**
domrep 1.063 1.059
(0.190)** (0.194)**
ecuador 1.059 0.982
(0.248)** (0.227)**
56
(0.049)** (0.050)**
guatemal 0.547 0.657
(0.254)* (0.310)*
guyana 0.686 0.611
(0.148)** (0.112)**
honduras 0.722 0.720
(0.273)** (0.275)**
jamaica 0.896 0.828
(0.236)** (0.220)**
mexico 0.861 0.785
(0.268)** (0.249)**
nicaragu 1.307 1.316
(0.226)** (0.252)**
panama -1.266 -1.203
(0.328)** (0.342)**
(0.107)** (0.108)**
peru 0.828 0.809
(0.062)** (0.072)**
suriname -0.568 -0.557
(0.910) (0.973)
(0.554) (0.553)
uruguay 0.730 0.728
(0.596) (0.597)
venezuel 1.062 1.113
(0.254)** (0.264)**
Constant 2.749 2.724 3.288 3.289
(0.292)** (0.263)** (0.368)** (0.474)**
Standard errors in
parentheses
* significant at 5%;
** significant at 1%
[insert unemployment write-up and data table here]
Yet in all of that preceding analysis, I did not test for the effects that personal vote
may have had on the statistical significance of the left correlation with budget surplus,
growth, inflation, and unemployment. Thus, I now run the regressions using the more
complex conditional model shown again here and outlined previously:
Si = β0 + β1Si-1 + β2L + β3P + β4L*P + E
57
where S is budget surplus, L is left partisanship, P is personal vote, and E is error. Once
again, I will analyze the model first without any dummy variables, then just year dummy
variables, then both year and country dummy variables, and finally with just country
dummy variables.
Just as in the regressions testing left partisanship’s effect on budget surplus that
did not include indicators of personal vote, once again we find no statistical significance
between left and budget surplus, with a negative coefficient for left partisanship. I next
run the regression including year dummy variables, but once again there is no statistical
significance, (the left coefficient is again negative). I then run the regression with both
year and country dummy variables. In this instance, there is no statistical significance for
the left variable, but the personal vote variable’s interaction effect on budget surplus was
very positive and statistically significant and the L*P variable was highly negative
statistically significant. For the individual countries, there was positive statistical
significance within 1% for Bahamas, Bolivia, Guyana, Paraguay, and Trinidad and
Tobago and positive statistical significance within 5% for Barbados. There was negative
statistical significance within 1% for Belize, Brazil, Chile, Costa Rica, Colombia,
Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Mexico, and Panama,
and negative statistical significance within 5% for Jamaica. It is important to note that
with both year and country dummy variables, I see for the first time a positive coefficient
for left partisanship, which might indicate that left had a positive effect on budget
surplus, but again this finding was not statistically significant.
To see if the year dummy variables played any role in the country significance, I
then re-ran the regression with just the country dummy variables included, with nearly
58
identical results in terms of country statistical significance. Left partisanship does not
appear to affect budget surplus, potentially due to the inclusion of the personal vote
variable, which was highly positive and significant for budget surplus. Additionally, the
interaction variable of L*P was negative and statistically significant, indicating that the
inclusion of the personal vote variable overruled any potential effects of left partisanship
on budget surpluses. Additionally, the personal vote appeared to be highly significant for
increased budget surpluses.
Table 5: Left’s Effects on Budget Surplus When Interacting with Personal Vote
Regressed first alone, then with year dummies, then year and country dummies, then country dummies
surdef (1) (2) (3) (4)
Budget Surplus as
Percent of GDP
left -0.852 -0.806 1.305 1.198
(2.195) (2.206) (1.236) (1.189)
Personal Vote 0.343 0.379 1,085.997 1,062.555
(1.254) (1.255) (339.130)** (352.072)**
Left*Personal Vote 2.929 2.771 -10.447 -10.092
(7.653) (7.665) (4.531)* (4.573)*
L. Surplus as % GDP 0.511 0.516 0.223 0.217
(0.210)* (0.219)* (0.284) (0.273)
y89 0.077 0.232
(0.672) (0.493)
y90 -0.248 -0.050
(0.451) (0.309)
y91 0.242 0.336
(0.697) (0.372)
y92 -0.619 -0.354
(0.672) (0.405)
y93 -0.277 -0.167
(0.681) (0.378)
y94 0.141 0.303
(0.597) (0.388)
y95 0.135 0.368
(0.422) (0.416)
y96 -0.741 -0.516
(0.461) (0.419)
bahamas 5.639 5.490
(1.806)** (1.864)**
(2.376)* (2.455)*
belize -17.175 -16.855
(5.160)** (5.353)**
bolivia 15.082 14.782
59
(5.121)** (5.379)**
brazil -564.022 -552.014
(176.641)** (183.440)**
chile -349.210 -341.593
(108.902)** (113.087)**
costaric -6.930 -6.817
(1.996)** (2.009)**
columbia -713.134 -697.760
(222.518)** (231.021)**
domrep -87.400 -85.466
(27.236)** (28.298)**
ecuador -311.446 -304.678
(97.045)** (100.620)**
elsalvad -4.034 -3.972
(1.322)** (1.373)**
guatemal -143.945 -140.703
(44.887)** (46.714)**
guyana 42.214 41.171
(13.098)** (13.665)**
honduras -14.821 -14.587
(4.675)** (4.834)**
jamaica -4.486 -4.297
(1.843)* (1.757)*
mexico -64.124 -62.672
(20.087)** (20.741)**
nicaragu -11.826 -11.672
(7.443) (7.554)
panama -309.225 -302.524
(96.410)** (100.321)**
paraguay 32.169 31.527
(10.264)** (10.623)**
peru -425.025 -415.857
(132.750)** (137.792)**
suriname -196.197 -192.069
(64.030)** (66.382)**
(1.887)** (1.987)**
uruguay -295.731 -289.356
(92.318)** (95.847)**
venezuel -132.268 -129.462
(41.364)** (43.005)**
Constant -0.690 -0.553 -115.785 -113.288
(0.369) (0.474) (36.309)** (37.604)**
Standard errors in
parentheses
significant at 1%
60
In order to test the point at which the interaction effects of personal vote overtake
any influence left partisanship had in affecting budget surplus, I then run a linear
combination test, such that L + L*Personal Vote*.1 = 0, and the result is not statistically
significant. I then run a second linear combination test, this time with 0.2 rather than 0.1.
Once again, there is no statistical significance. I continue running the test, with the P>|z|
variable trending towards statistical significance, and finally reaching statistical
significance at 0.5 (with a value of 0.048). Given this information, it would seem as
though when electoral systems use personal vote to a moderate degree or more (starting
at 0.5 on the scale from 0 to 1, with 1 being a completely personal-vote-oriented system),
any effect that left may have had on budget surpluses would diminish, with personal vote
instead the cause of larger budget surpluses. Recall that left partisanship was statistically
insignificant for affecting budget surplus both in this run and in the previous run that
excluded the potential interaction effects of personal vote.
Table 6: Linear Combination Test Showing Personal Vote Interaction Effects in the
Model with Budget Surplus
PV Value Coefficient Std. Err. z P>|z| [95% Conf. Interval]
.1 .1889635 1.025667 0.18 0.854 -1.821307 2.199234
.2 -8202265 1.053178 -0.78 0.436 -2.884418 1.243965
.3 -1.829416 1.258792 -1.45 0.146 -4.296603 .6377704
.4 -2.838606 1.574202 -1.80 0.071 -5.923985 .2467719
.5 -3.847796 1.946752 -1.98 0.048* -7.663361 -.0322319
.6 -4.856986 2.349417 -2.07 0.039* -9.461759 -.2522138
.7 -5.866176 2.769089 -2.12 0.034* -11.29349 -.4388609
.8 -.875366 3.199083 -2.15 0.032* -13.14545 -.6052786
.9 -.884556 3.635738 -2.17 0.030* -15.01047 -.7586408
1 -.893746 4.076914 -2.18 0.029* -16.88435 -.9031413
* significant at 5%; ** significant at 1%
I then include the personal vote variable in the model’s examination of the
relationship between left partisanship and economic growth. Here the left coefficient is
positive though statistically insignificant. Personal vote is also positive but insignificant.
61
I then add year dummy variables. In this instance left is both positive and approaches
statistical significance with a P>|z| of 0.086, and personal vote is also positive but
statistically insignificant. There is negative statistical significance at 1% for 1989 and
1990 and at 5% for 1995. I then add country dummy variables, such that there are both
year and country dummy variables in the regression. Here, the left coefficient is positive
and very statistically significant at 1%. Personal vote is highly negative but statistically
insignificant. 1989 and 1990 are again negative and statistically significant at 1% and
1995 is negative and statistically significant at 5%. Interestingly, there is no country
statistical significance. I then regress the model with only country dummy variables.
The left coefficient is positive and highly statistically significant, indicating again a
positive relationship between left governance and economic growth, which my
hypothesis did not predict. However, there is no statistical significance at the country
level. Personal vote is again negative and insignificant. Based on these findings, left
does appear as statistically significant in positive affecting growth (a finding not
confirmed when personal vote was excluded, see Table 2). But given the highly negative
and significant coefficient of L*P, introduction of personal vote may diminish left
partisanship’s positive effects on growth.
Table 7: Left’s Effects on Growth When Interacting with Personal Vote

growth (1) (2) (3) (4)
GDP Growth
left 0.714 0.764 2.802 2.753
(0.518) (0.445) (1.062)** (1.119)*
Personal Vote 1.215 1.155 -253.178 -151.863
(0.851) (0.850) (533.809) (641.677)
Left*Personal Vote -8.481 -7.899 -25.736 -27.971
(4.735) (4.512) (8.998)** (9.100)**
L. GDP Growth 0.384 0.381 0.208 0.210
(0.126)** (0.129)** (0.137) (0.138)
y89 -1.936 -1.855
62
(0.662)** (0.537)**
y90 -1.952 -1.879
(0.624)** (0.580)**
y91 -0.515 -0.730
(0.701) (0.531)
y92 -0.283 -0.210
(0.686) (0.574)
y93 -1.186 -0.972
(0.708) (0.647)
y94 -0.031 0.098
(0.738) (0.629)
y95 -2.261 -1.895
(0.941)* (0.794)*
y96 -1.050 -1.123
(0.945) (0.751)
bahamas -4.079 -3.468
(3.326) (3.967)
barbados -4.202 -3.500
(3.396) (4.005)
belize 4.674 3.251
(7.813) (9.288)
bolivia -3.947 -2.317
(8.194) (9.752)
brazil 128.954 76.689
(275.355) (331.000)
chile 85.141 52.306
(173.117) (208.077)
(2.292) (2.773)
columbia 165.742 99.278
(350.214) (420.977)
domrep 20.580 12.272
(43.846) (52.682)
ecuador 79.515 51.066
(156.623) (187.979)
(2.100) (2.365)
guatemal 33.549 19.637
(70.572) (84.900)
guyana -11.963 -7.219
(24.549) (29.282)
honduras 2.202 1.086
(5.897) (7.085)
jamaica -0.681 -0.922
(3.286) (3.808)
mexico 15.864 10.207
(32.270) (38.839)
nicaragu -0.896 -1.905
(2.094) (2.642)
panama 74.311 45.542
(153.190) (183.916)
paraguay -7.830 -4.994
(14.936) (17.951)
63
peru 100.355 60.902
(209.748) (252.042)
suriname 47.941 29.767
(96.483) (115.695)
trinitob -3.959 -3.341
(3.759) (4.293)
uruguay 68.309 40.751
(145.196) (174.536)
venezuel 29.627 17.188
(64.118) (77.194)
Constant 2.137 3.172 31.099 19.403
(0.642)** (0.707)** (56.621) (68.115)
Standard errors in parentheses
significant at 1%
To determine the degree of personal vote at which it begins to diminish left
partisanship’s effects on growth, I again run a linear combination test, beginning at 0.1
and ending at 1. The interaction becomes significant at .2, and is highly significant from .
3 on with statistical significance at 1%. The importance of these findings is noteworthy.
When the value for personal vote reaches even the most negligible of levels (with the
minimal personal vote value of 0.2), I find that personal vote interacts with left’s effects
on growth in a sharply negative direction, with a reported statistically significant
coefficient on L*P of -25.736 (see Table 7). Interestingly, the coefficient of the personal
vote variable was insignificant in each of the regressions ran, which contrasts sharply
with the regressions run on the budget surplus variable. There, we saw personal vote’s
effects to be statistically significant and left’s effects to be statistically insignificant
(though they trended towards greater deficits). While left partisanship is shown in this
case to be statistically significant for generating more economic growth (in particular
with year and country dummy variables included—see Table 7), the sharply negative and
statistically significant interaction effects of the personal vote on left partisanship
64
indicates that personal vote, even at minimal levels, greatly decreases the degree to which
left partisanship is a cause for that higher growth.
Model With GDP Growth
.1 -.044203 .8466665 -0.05 0.958 -1.703639 1.615233
.2 -2.841325 1.355517 -2.10 0.036* -5.498091 -.1845599
.3 -5.638448 2.148111 -2.62 0.009** -9.848667 -1.428228
.4 -8.43557 3.00794 -2.80 0.005** -14.33102 -2.540116
.5 -11.23269 3.89068 -2.89 0.004** -18.85829 -3.607099
.6 -14.02981 4.783665 -2.93 0.003** -23.40563 -4.654003
.7 -16.82694 5.682067 -2.96 0.003** -27.96358 -5.690291
.8 -19.62406 6.583668 -2.98 0.003** -32.52781 -6.720308
.9 -22.42118 7.487312 -2.99 0.003** -37.09604 -7.746319
1 -25.2183 8.392341 -3.00 0.003** -41.66699 -8.769619
* significant at 5%; ** significant at 1%
I then take the personal vote factor into consideration in regards to the
relationship between left partisanship and inflation. Here the left coefficient is positive,
and just shy of statistically significance with a P>|z| of 0.057. Personal vote is also
positive and statistically significant. I then add year dummy variables. In this instance
left is again positive and approaches statistical significance with a P>|z| of 0.079 and
personal vote is again positive and statistically significant. There is negative significance
at 5% for 1989 and 1% for 1993 and positive significance for 1990 at 1%. I then add
country dummy variables, such that both year and country dummy variables are included
in the regression. Here, the left coefficient is negative and statistically insignificant.
Personal vote is highly significant and highly positive, indicating a substantial effect on
personal vote on increased inflation. 1990, 1991, and 1992, are positive and statistically
significant, while 1993 and 1996 are negative and statistically significant. There was
positive country significance for Bahamas, Barbados, Bolivia, Guyana, Nicaragua,
65
Panama, and Trinidad and Tobago, and negative country significance for Belize, Brazil,
Chile, Colombia, Dominican Republic, Ecuador, Guatemala, Mexico, Panama, Peru, and
Uruguay. I then run a regression of the model with only country dummy variables. Here,
the coefficient of left partisanship is negative and statistically insignificant. Personal vote
is again highly significant and highly positive. At the country level, statistical
significance remains for those listed in the previous regression. Left partisanship does
not appear to affect inflation with any degree of statistical significance, and while
personal vote does not appear to alter the effects of left partisanship on inflation, personal
vote was highly correlated and statistically significant for increased inflation.
Table 9: Left’s Effects on Inflation When Interacting with Personal Vote

lncpi (1) (2) (3) (4)
Natural Log Consumer
Price Index
left 0.253 0.231 -0.217 -0.157
(0.133) (0.132) (0.272) (0.268)
Personal vote 0.445 0.427 92.691 102.337
(0.195)* (0.188)* (21.587)** (6.725)**
Left*Personal Vote 0.077 0.078 1.135 1.225
(0.509) (0.418) (0.699) (0.885)
L. NL CPI 0.336 0.351 0.102 0.108
(0.072)** (0.067)** (0.087) (0.100)
y89 -0.179 -0.067
(0.072)* (0.049)
y90 0.212 0.273
(0.036)** (0.037)**
y91 0.067 0.177
(0.064) (0.073)*
y92 0.149 0.236
(0.089) (0.071)**
y93 -0.369 -0.263
(0.087)** (0.068)**
y94 -0.080 -0.095
(0.090) (0.059)
y95 -0.036 -0.053
(0.042) (0.044)
y96 -0.061 -0.068
(0.052) (0.011)**
bahamas 0.737 0.794
(0.140)** (0.075)**
66
(0.154)** (0.067)**
belize -1.442 -1.576
(0.395)** (0.284)**
bolivia 1.880 1.994
(0.430)** (0.293)**
brazil -46.976 -51.955
(11.161)** (3.505)**
chile -29.409 -32.536
(7.002)** (2.192)**
(0.295) (0.288)
columbia -60.132 -66.462
(14.180)** (4.438)**
domrep -6.535 -7.330
(1.811)** (0.622)**
ecuador -26.085 -28.982
(6.299)** (1.913)**
elsalvad -0.038 -0.066
(0.075) (0.050)
guatemal -11.693 -12.852
(2.755)** (0.979)**
guyana 4.973 5.339
(0.994)** (0.278)**
honduras -0.296 -0.405
(0.375) (0.291)
jamaica 0.486 0.372
(0.295) (0.267)
mexico -4.704 -5.360
(1.338)** (0.524)**
nicaragu 0.989 0.968
(0.272)** (0.294)**
panama -27.780 -30.477
(6.057)** (1.860)**
(0.601)** (0.202)**
peru -35.590 -39.397
(8.486)** (2.637)**
suriname -17.119 -18.821
(3.532)** (1.881)**
(0.547)* (0.539)*
uruguay -24.479 -27.106
(5.924)** (1.952)**
venezuel -10.151 -11.268
(2.670)** (0.897)**
Constant 2.671 2.648 -6.519 -7.549
(0.307)** (0.268)** (2.469)** (1.015)**
Standard errors in
parentheses
* significant at 5%;
67
** significant at 1%
To determine the degree of personal vote at which it begins to affect inflation with
statistical significance, I again run a linear combination test, beginning at 0.1 and ending
at 1. Interestingly, the interaction becomes highly significant at .3, but then trends
towards statistical insignificance and loses significance at 0.7, indicating significance
only at moderate levels of personal vote usage, but insignificance in instances of extreme
personal vote or very little personal vote. Given the above data from Table 9, the
personal vote variable is both positive and statistically significant for its effects on
inflation indicating that instances of personal vote led to increased inflation. When
combined with the results from the linear combination test, it appears as though the
personal vote has a significant, positive effect on inflation, though only when personal
vote appears at moderate levels (from 0.3 until 0.7).
Model with Inflation
.1 -.0349526 .1822687 -0.19 0.848 -.3921926 .3222875
.2 .087535 .1014999 0.86 0.388 -.1114012 .2864712
.3 .2100226 .0551729 3.81 0.000 .1018857 .3181594
.4 .3325101 .106992 3.11 0.002 .1228096 .5422107
.5 .4549977 .1884462 2.41 0.016 .0856498 .8243455
.6 .5774853 .2742957 2.11 0.035 .0398756 1.115095
.7 .6999728 .3614218 1.94 0.053 -.0084008 1.408346
.8 .8224604 .4490821 1.83 0.067 -.0577243 1.702645
.9 .9449479 .5370151 1.76 0.078 -.1075822 1.997478
1 1.067436 .6251056 1.71 0.088 -.157749 2.29262
Summary of Findings
Based on the preceding analysis, my hypothesis is proven partially correct when
personal vote is excluded from the model. Left partisanship did not turn out to be
statistically significant with the budget surplus variable, which was a proxy for economic
68
policy. So it cannot be determined from this study that left partisanship does indeed lead
to substantively different economic policy than center or right governments. However,
left partisanship did appear to have a statistically significant positive effect on inflation, a
finding which supports my hypothesis. There was some limited evidence of left
partisanship leading to decreased growth within certain years and countries, which would
support my hypothesis. However, this finding was not replicated on the aggregate, and I
cannot argue that left partisanship conclusively leads to lower growth rates.
When testing the conditioned model that included the personal vote variable, my
hypothesis was largely refuted. While left partisanship had no discernable effect on
increased budget surpluses, personal vote systems were correlated with statistical
significance to larger budget surpluses. Additionally, in terms of growth, I actually found
a positive relationship between left governance and economic growth, both without
dummy variables and with year dummy variables. This finding directly contradicts my
hypothesis. However, when personal vote was introduced to the model at low non-zero
values, the degree to which left partisanship was the cause of that higher growth greatly
decreased. Personal vote itself had a negative but statistically insignificant effect on
growth, but it did decrease sharply the degree to which left partisanship was the cause of
that growth. In regards to inflation, left partisanship did not appear to affect inflation
with any degree of statistical significance, and the personal vote did not appear to alter
either negatively or positively the effects of left partisanship on inflation with any degree
of statistical significance. However, personal vote was highly correlated and statistically
significant for increased inflation across all four regressions, indicating that personal vote
does lead to higher inflation. Interestingly, this finding was significant from a personal
69
vote range of 0.3 to 0.7, indicating that personal vote positively affected inflation only at
moderate levels. When personal vote took a value from 0 to 0.2 or from 0.8 until 1, it
was not statistically significant for increasing inflation.
70
CHAPTER 5: Concluding Remarks
The discussion of partisan’s effects on economic performance in Latin America is
a pressing one, for the region is one marked by severe income inequality, with a poor
population remaining quite sympathetic to socialist and redistributionist rhetoric. In
determining the effects that left partisanship has had on economic performance in the
region, the results could indicate whether left governments remain destructive as
demonstrated in the past (the rule of the Unidad Popular in Chile is a fitting example), or
can govern in such a way as to continue and strengthen the upward trajectory of growth
that countries of the region need in order to bring their citizens closer to first-world
lifestyles. From my analysis of the history of development in Latin America, we see that
left governments have at times been destructive, but that they have begrudgingly moved
towards greater economic liberalization during the past few decades. Yet, it remained
unclear as to whether that liberalization was occurring with the same fervor and degree of
action as we would expect to see under right-controlled governments. Coupled with the
sound theories and explanations provided by scholars regarding partisanship’s effects on
economic performance in OECD countries, there remained a substantial gap in regards to
how left governments should perform both theoretically and empirically, particularly in
the context of Latin America. This study sought to at least partially fill that gap.
The findings from my data indicate that both sides of the argument on
partisanship have some merit. Those arguing that left partisanship does indeed negatively
affect economic outcomes would be vindicated by my findings of statistical significance
for left governance leading to higher inflation. The Hibbsian worldview was also
71
vindicated by my findings that left governance was, at least in some instances, proven
statistically significant with higher growth (though this finding does admittedly disagree
with my original hypothesis). It is important to note, however, that this finding only
came about after including personal vote as an additional variable interacting in the
model (this will be discussed in greater detail momentarily). In regards to left
partisanship’s effects on budget surpluses, a proxy for economic policy that would help
us determine if indeed the left was engaging in more redistribution, the data was
insignificant. While there was a negative relationship between left partisanship and the
budget surpluses, indicating the possibility of a relationship between increased left power
and higher budget deficits, these findings were not statistically significant. [Insert
remarks regarding effect of left on unemployment here].
The introduction of the personal vote variable into the model produced some
unexpected and interesting results. Personal vote systems were found to be significant
with higher budget surpluses, but only when the electoral system had at least a moderate
score for personal vote (0.5 or above). Personal vote systems were found to be
insignificant in regards to growth, but were found significant for diminishing any positive
effects on growth that left partisanship may have had when reaching or exceeding a value
of just 0.2. And the personal vote variable was found to be highly significant for higher
inflation. But that claim comes with a twist, as the interaction effects of introducing
personal vote only became significant for moderate levels of personal vote (between 0.3
and 0.7), but not for either high or low extremes. It is interesting to posit the reasons as
to why this could be so. Perhaps by virtue of the nature of personal vote systems,
whereby politicians must appeal directly to individual voters—or perhaps the median
72
voter—these politicians must engage in more redistributionist activity simply because the
median voter supports policies such as government redistribution even as these policies
have been confirmed empirically as an ineffective long-term strategy for sustained
positive economic performance. However, this conclusion is tempered by the knowledge
that my analysis proved insignificant for the effects of left governance on budget
surpluses, as I cannot conclude with any level of certainty that these left governments are
systematically spending more money and generating higher deficits than their right-
controlled counterparts. Perhaps there are additional metrics that could be better suited to
analyzing the intricacies of economic policy beyond budget balance. I acknowledge the
use of only one variable as a proxy for economic outcomes as a limitation of this study.
In terms of the finding that the personal vote variable was statistically significant
for higher inflation only for moderate degrees of personal vote, a certain intuitive logic
may be buried in those findings. Perhaps in instances of a minimal personal vote score
(0.2 or below), left partisans would simply enact policies within limits brought about by
the structural dependence of capital, such that these policies would bear striking
similarity to the policies of their right-leaning counterparts. And in instances of moderate
personal vote (with a score from 0.3 to 0.7), perhaps the higher inflation occurred as a
result of appeals to the median voter (who may support redistributive economic policies)
tempered by partisan notions of engaging in economic action limited by the state’s
dependence on capital. Finally, in instances of extreme personal vote (with a score from
0.8 to 1), higher inflation may have been insignificant because even as the party line
became decreasingly significant and the median voter decreased in importance,
politicians engaging in clientelistic policy may have actually implemented policies that
73
led to positive economic performance. Yet these explanations are mere conjecture.
Further study is undoubtedly warranted in order to better understand the subtle nuances
with which personal vote interacts with partisan control over the direction of economic
policy and performance.
My study was additionally limited by a number of factors. Firstly, the data set
from which I have been operating examines Latin America from 1988 to 1997. However,
more recent data is available. Additional studies on this topic would do well to analyze
these effects over more extended periods of time, potentially from 1988 until the most
recent years for which data is available, typically 2005 or 2006. The notion of increasing
the time-span of the study becomes increasingly relevant given the rise of socialist
governments in Venezuela, Ecuador, and Bolivia. An investigation of the performance of
these left-oriented partisan governments compared with other left-oriented governments
that do not specifically proscribe to socialist ideology may lead to interesting results, as
different types of left-oriented governments (with some proscribing socialism and others
proscribing greater liberalism) could potentially behave in systematically different
manners both in terms of their economic policy choices and in terms of macroeconomic
outcomes. It is conceivable that socialist governments support more redistributionist
policies than other left-controlled governments following a more comparatively
conservative tract, and such a notion is worthy of further research.
The study also may have benefited from the inclusion of additional metrics as
proxies for economic policy. It remains to be seen if left partisanship really does have an
effect on economic policy in Latin America; my data was not statistically significant but
did consistently trend towards negative budget balances. Future studies would do well to
74
include additional metrics of economic policy in conducting such analysis. Also, future
testing might benefit from a more detailed coding of parties, perhaps with left as -1,
center as 0, and right as 1, in order to better understand the distinctions between the three
ideological orientations of governments. And indeed, perhaps certain socialist-oriented
leftist-controlled governments are worthy of their own codification as well. Additionally,
my data for unemployment only examined urban unemployment, but there remains a
substantial rural poor in Latin America. Future studies might do well to analyze the
policies and partisanship of the left for both urban unemployment and unemployment as a
whole.
There are a number of additional directions I urge scholars to follow in continuing
to analyze the role of partisanship in shaping macroeconomic performance. Future
analyses of Latin America would benefit from a more rigorous analytical approach, such
as the one encompassed by Bill Clark and described in Chapter 3—namely, it would be
useful to include variables such as central bank independence, exchange rate regime, and
degree of capital account liberalization, in order to determine if any of these variables
have intervening effects on the relationship between partisanship and economic
performance. Additionally, a test of the SDC hypothesis might be useful for Latin
America as well, for labor movements certainly have played a broad history in shaping
the economy of the region. Moreover, it may be worthwhile to directly analyze the
importance of the median voter to the government’s economic decision-making, rather
than merely make conjecture as this thesis does. Future studies may determine that all of
the preceding suggestions pale in regards to the whims of the median voter; this question
75
is indisputably deserving of exploration in greater depth, and in regards to Latin America
in particular.
The findings of this study certainly have broader implications for Latin America.
If left governments do indeed lead to higher growth but also higher inflation, then
citizens electing officials must determine the macroeconomic outcomes most favorable to
them and to their nation as a whole, making a tradeoff between higher growth or lower
inflation. Importantly, there are also substantial implications of the notion that personal
vote has intervening effects in this analysis. Governments seeking to limit negative
economic outcomes such as high inflation and negative budget deficits might construct
electoral systems limiting the personal vote, such that voters vote for political party rather
than for individual politicians. And of course, the implementation of less personal-vote-
centric systems must be evaluated in terms of the tradeoffs that would occur as a result of
leaving behind such systems—increased party control and homogenization, and
potentially less responsiveness between government action and the true will of the voters.
The discussion regarding the role of partisanship’s influence on economic
performance, both in Latin America and in regards to the world at large, remains robust
and a salient topic of both academic and political debate. The findings in this piece were
not altogether conclusive, and further research must surely be done to better analyze the
ways in which the partisan orientation of government interacts with economic
performance, in particular in Latin America. But perhaps this piece will nevertheless
serve as an addition to the literature in demonstrating that under certain conditions,
partisanship can play a role in shaping economic performance in Latin America. And
importantly, this piece raises several questions regarding the ways in which electoral
76
systems such as personal vote ballots interact in with partisan goals and economic
decision-making. Scholars analyzing Latin America, other emerging markets, or even
primarily OECD countries would do well to take note of the possible implications of the
personal vote ballot’s effects on macroeconomic performance when engaging in future
research into this field of study.
77
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Trials of the Left: Do Leftist Governments Spell Economic Disaster for Latin America?

Auren Evan Kaplan

The Department of Political Science

For inspiring within me a deep-seated intellectual interest in the topic of economic

Table 1: Left’s Effects on Budget Surplus; No Interaction with Personal Vote........................51

Table 2: Left’s Effects on Growth; No Interaction with Personal Vote......................................53

Table 3: Left’s Effects on Inflation; No Interaction with Personal Vote....................................56

Table 7: Left’s Effects on Growth When Interacting with Personal Vote..................................62

Table 9: Left’s Effects on Inflation When Interacting with Personal Vote................................66

CHAPTER 5: Concluding Remarks.................................................................................71

The problem of development is one of great relevance to economists, who

effectively develop societies. In this sub-discipline called development economics, these

economists may focus on macroeconomic goals such as increased Gross Domestic

consequences they may have for the economies of developing countries, or on

pursuit of improved development outcomes is a noble one. Indeed, if one were to

or years of education, or focusing on increasing life expectancy while decreasing infant

education, or improved infrastructure, or access to healthcare, or through steady

theoretical body of knowledge on how to successfully improve development outcomes is

developed counterparts (South Africa, 49 years; Nigeria, 47 years; Zimbabwe, 44 years). 1

first-world countries in terms of life expectancy (Brazil, 72 years; Bolivia, 67 years;

proper development policies is not sufficient. The implementation of those policies

requires action by government, which at least in cases of democratic governance is on

implemented. It will be through an examination of political differences within

thesis finds its focus. I will explain further in a moment.

were so much poorer than their more relatively affluent counterparts.

overall development standing of their country, or diminishing it—not only do they

redistribution, or engaging in macroeconomic policies to bring about a healthy mix

government actions in terms of generating positive macroeconomic results.

example may serve to characterize a behavior endemic to political action of left-leaning

becomes particularly salient as left-leaning members of society could support political

interests. When voters elect left-leaning politicians on the expectation of certain

difference in terms of economic performance when examining countries in Latin

The prevailing literature discussing the broad role of partisanship in shaping

commonly studied in the prevailing literature. Additionally, the societal cleavages

centric literature would not foresee.

in those Latin American countries, as measured through macroeconomic outcomes such

explanation for the differences in development outcomes in light of those strategies.

Finally, I will propose a test of my explanation whereby I outline my hypotheses and

other potentially competing hypotheses, offering some brief conjectural arguments in

governments on the economic performance of nations under their command.

My examination of Latin American development strategies begins in the lead-up

determined to be chronic underdevelopment in the region during this period, a theory of

in short, “develop industries in a protected environment.” 10 Rather than focus on

liberalizing their economies, these theorists sought to generate industrial production

previously had been imported. In so doing, governments would employ incentives to

encourage further domestic economic growth.11

experienced relatively prosperous levels of GDP growth (4.8% in Chile, 4.2% in

form of development, known as import-substitution industrialization (ISI) was that while

Effectively, by stimulating domestic industrial production of advanced manufacturing

increased.14 With Prebisch’s ECLA garnering an official affiliation as a United Nations

related to economic development in Latin America.”15

oriented towards exports, increasingly mobilized workers developed important political

development trajectory, seen as favorable to both of their interests.17 This union of

in Chapter 3). But the apparent connection is indeed noteworthy.

Of course, just as noteworthy is the apparent eventual failure of ISI-style

protection, combined with increased burdens on public sector budgets and

discouragement of exportation in favor of ramping up domestic production and

consumption—all of which combined to generate an enormous debt crisis that would

eventually suffered from long-term imbalances in their current accounts, leading to

debt, other Latin American governments followed—including Brazil, another significant

clearly ended in failure.

policy is known as populism, defined by scholars as a political movement towards

industrialization through ameliorative redistributive measures.”23 In the sense of