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Show me the money! Economic openness, the left, and social spending in Latin America

Abstract

How has economic openness affected social spending? Are allocations influenced by the partisan preference of the executive branch? In this paper, I test various hypotheses about the determinants of social spending in contemporary Latin America, using a time-series cross-sectional analysis of 17 countries in the period between 1978 and 2006. Contrary to the expectations of critics, I find that trade openness affects social spending positively and governments are compensating citizens exposed to greater economic uncertainty. In addition, I find that partisanship is an important predictor of social spending. Left-wing executives spend more money on social programmes than their right-wing counterparts. This finding is particularly strong when left-wing executives have greater legislative support. In the final section, I re-examine my quantitative findings in a case study of Uruguay.

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Figure 1

Notes

  1. 1.

    Alternative estimation techniques including robust regressors (‘rreg’), Prais–Winsten regression, or ML random-effects estimators (‘mle’) did not produce major substantive changes in the reported results or the robustness of the model.

  2. 2.

    Following Mainwaring and Pérez-Liñán (2005), I include semi-democracies since they face popular pressures absent from authoritarian regimes.

  3. 3.

    Despite authoritarian political institutions and relatively stagnant economy, Cuba devotes an astonishing 39 per cent of GDP to social programmes. Not coincidentally, Cuban citizens enjoy one of the highest levels of education and health in Latin America.

  4. 4.

    To standardise measures of social security expenditure across cases, the IMF aggregates social assistance (assistência social, bienestar, asistencia social) and social security (previdência social, seguro social). Scholars of social spending in Latin America call this spending ‘social security’ even though this terminology provokes notions of biased, mal-distributive allocations favouring workers in the formal economy. According to the IMF, this variable includes funds, both private and governmental, allocated in the national budget to poverty, unemployment, maternity leave, retirement, disability, and pension allocations. Also included are expenditures that are not employment- or earnings-based and programmes of a progressive nature, which target the informal sector.

  5. 5.

    Argentina, Brazil, Ecuador, Nicaragua, Panama, Paraguay, Peru, and Uruguay.

  6. 6.

    Running separate tests on the IMF and national data did not produce divergent results.

  7. 7.

    Since social spending/GDP is the most common measurement, I did not include variables for social spending per capita or as a percentage of all government expenditures. Generally, the same patterns hold among alternative measurements (Kaufman and Segura-Ubiergo 2001; Avelino et al. 2005; Segura-Ubiergo 2007).

  8. 8.

    A lagged dependent variable underestimates the strength of the independent variables, giving greater credence to the results (Achen 2000).

  9. 9.

    Countries facing greater competition from imports may be more resistant to trade. Pairwise correlations between imports (as a percentage of GDP) and trade openness are highly correlated (0.968), meaning there is little substantive difference between the two variables and both behave similarly within the specified model. Exports are also highly correlated with imports hinting that trade openness is a solid proxy variable for countries dependent on imports or exports.

  10. 10.

    DOD implies a contractual liability to make principal and interest payments. While the claimant is a non-resident, the variable does not distinguish between multilateral agencies, national governments, or private banks.

  11. 11.

    According to Coppedge, leftist parties are secular, employ Marxist rhetoric, stress the redistribution of wealth, and advocate a strong role for the state in correcting injustice.

  12. 12.

    Coalition partners are not included unless the coalition has an obvious enduring quality (for example Uruguay’s Frente Amplio and Chile’s Concertación).

  13. 13.

    See http://www.intracen.org/tradstat/sitc3list.htm.

  14. 14.

    To avoid problems of heteroscedasticity, control variables were logged. The correlation between GDP and GDP per capita is 0.66. While there is mild colinearity between GDP and population (0.81), these variables must be included for theoretical reasons.

  15. 15.

    Argentina, Brazil, Chile, Costa Rica, and Uruguay.

  16. 16.

    Although not considered a likely candidate for social policy, Bolivia has emerged as a role model for many developing nations. Between 1997 and 2006, Bolivia apportioned on average 13.39 per cent of their GDP towards social spending.

  17. 17.

    Some scholars wonder whether or not Uruguay should be categorised as a ‘welfare state’ (Rial 1988; Filgueira 1995).

  18. 18.

    MERCOSUR (Mercado Común del Sur, Southern Common Market) is a regional political and economic block encouraging greater trade integration among member states. Currently, Brazil, Argentina, Uruguay, and Venezuela have full membership. Bolivia, Chile, Colombia, Peru, Ecuador, and Mexico have associate-member or observer status. Recently, Paraguay was suspended for the ouster of former President Fernando Lugo.

  19. 19.

    By the end of his administration Batlle cut education spending by 3 per cent, health by 11 per cent, housing by 15 per cent, and social security by 19 per cent.

  20. 20.

    More information on Juntos available at http://juntos.gub.uy/inicio.

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Acknowledgements

The author thanks Juan Pablo Micozzi, Mark Peceny, Kathryn Hochstetler, Jessica Feezell, Charles Brockett, Wendy Hansen, Alex Adams, Ben Waddell, Phil Hultquist, and the anonymous reviewers for their helpful suggestions. A special thanks to Thomas Spaccarelli.

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Correspondence to Grant Burrier.

Appendix

Appendix

Table A1

Table A1 Model variables: Definition and source

Table A2

Table A2 Social spending and trade openness by country

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Burrier, G. Show me the money! Economic openness, the left, and social spending in Latin America. J Int Relat Dev 19, 608–637 (2016). https://doi.org/10.1057/jird.2014.27

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Keywords

  • Latin America
  • natural resources
  • partisan politics
  • social spending
  • trade openness
  • Uruguay
  • veto players
  • welfare state