A panel data analysis of Latin American populism

Abstract

This paper provides new estimates of the effects of left-of-center populist regimes on economic developments in the 21st century in Latin America. In contrast to earlier research, we take account of the price shocks that may also have affected economic development during these regimes’ time in office. In general, we find that left-populist regimes reduced per capita real income in both the short and long run, after accounting for those price shocks.

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Fig. 1

Source: Maddison Project Database, version 2018. Bolt, Jutta, Robert Inklaar, Herman de Jong and Jan Luiten van Zanden (2018), “Rebasing ‘Maddison’: new income comparisons and the shape of long-run economic development,” Maddison Project working paper 10

Notes

  1. 1.

    For a broader discussion of political party institutions, see Levitzky and Ziblat (2018).

  2. 2.

    A Keynesian policy is not necessary indicative of a populist leader despite its similarities to a typical left-leaning populist economic policy (Bresser Pereria and Dell’Acqua 1991). The fact that populist leaders tend to apply Keynesian policies does not mean that applying a Keynesian policy makes a government populist.

  3. 3.

    Present-day Brazil represents a case of right-wing populism, making it an outlier among Latin America's left-wing populist regimes (Edwards 2019).

  4. 4.

    We leave out countries where a significant change in populist policies is contestable, such as Lula da Silva’s presidency in Brazil. In da Silva’s case, populist rhetoric has not been translated into policy.

  5. 5.

    Evo Morales resigned to the Presidency in 2019, date that falls outside our sample.

  6. 6.

    Correa’s presidential term ended in 2017, date that falls outside our sample.

  7. 7.

    An exception is the measure of populism developed by Hawkins (2009). However, an important issue with this measure is its subjective component. The index is developed by observing presidential speeches and looking for keywords that are representative of populist leaders. This method can led to odd results, such as Argentina's 1990s president Carlos S. Menem having a higher populist score than Néstor Kirchner. Hawkins’ work looks at populism as a discourse, while we are concerned with populism as implemented policy. Another exception is Ocampo (2015a, b). Even though Ocampo examines implemented policy, his measure is tailored for Argentina.

  8. 8.

    According to Edwards (2019), Mexico since 2018 and Brazil since 2019 would be characterized as populist regimes. These two cases, however, fall outside our dataset.

  9. 9.

    We look at PPP-adjusted GDP to consider not only changes in income but also changes in the cost of living under these populist regimes.

  10. 10.

    If the EFW values were mostly constant, they could just be included in the fixed effects. However, these values show a level of variation in the EFW that warrants its inclustion in a model specification to capture any potential effect. Also, a large literature shows empirically the strength of the link between economic freedom, economic growth, and income levels. At the cross-country level, Faria and Montesinos (2009, p. 123) “report the existence of a strong, positive, statistically consequential impact of EFW [Economic Freedom of the World] on growth and the level of income.” See also Gwartney et al. (2004) and Easton and Walker (1997), who also find strong, positive relationships between the level of economic freedom, economic growth, and income. Hall and Lawson (2014, p. 1) survey the economic literature using the economic freedom of the world as an independent variable and find that “over two-thirds of these studies found economic freedom to correspond to a ‘good’ outcome such as faster growth, better living standards, more happiness, etc. Less than 4% of the sample found economic freedom to be associated with a ‘bad’ outcome such as increased income inequality. The balance of evidence is overwhelming that economic freedom corresponds with a wide variety of positive outcomes with almost no negative tradeoffs.”.

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Correspondence to Nicolás Cachanosky.

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Cachanosky, N., Padilla, A. A panel data analysis of Latin American populism. Const Polit Econ 31, 329–343 (2020). https://doi.org/10.1007/s10602-020-09302-w

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Keywords

  • Latin America
  • Populism
  • Panel data regression
  • Income

JEL Classification

  • E02
  • P11
  • P51