Latin American democratisation and currency crises (1975–2008)

Original Article


Latin America experienced a deep political transformation from authoritarianism to democracy in the recent decades. During the same period, many countries in the region also suffered severe currency crises. We contend that these two phenomena are causally related. Specifically, we argue that democratic transitions increase political demand for public spending, leading to budget deficits, and this increases investors’ propensity to liquidate local currency holdings. Moreover, we note an important ‘threshold’ effect, in which democratisation is particularly likely to lead to currency crises when the pre-existing fiscal deficits are already relatively high. Statistical analysis confirms these arguments in a sample of 25 Latin American countries in the period from 1975 to 2008.


budget deficit currency crises democratisation herding Latin America political regime 


Supplementary material

41268_2016_55_MOESM1_ESM.doc (355 kb)
Online Appendix Tables C1–C8


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Copyright information

© Macmillan Publishers Ltd 2016

Authors and Affiliations

  1. 1.Global Affairs, George Mason UniversityFairfaxUSA
  2. 2.University of MissouriColumbiaUSA

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