The Risk of Democracy: Theoretical and Empirical Considerations on the Effects of Electoral Uncertainty on Latin American Emerging Markets
Lopez-Aranda, Jaime G.
2006
- Submitted in partial fulfillment of the degree Master of Arts in Law and Diplomacy at the Fletcher School of Law and Diplomacy. Abstract: I derive two basic models from political-business cycle (PBC) theory and the original obsolescing bargain model to assess the level of political and economic risk associated with Latin American elections. The first model posits that the economic risks associated ... read morewith the victory of a given candidate are a function of both ideology and the macroeconomic outlook of the country. The second model builds on these assumptions to analyze the specific case of the risk of expropriation or measures tantamount to expropriation, as well as of other disruptive policies such as sudden tax hikes. It posits that this particular risk is a function of the ideological preferences of the government, as in the first case, but also of the economic cost associated with the policy. I contend that the models help explain past and recent instances of macroeconomic instability and expropriation events. I also argue that the PBC model explains why the lead of left-wing candidates in Mexico and Brazil has not resulted in an increased perception of risk for these countries as measured by sovereign spreads--in spite of the notion that these types of candidates are invariable associated with investor malaise. I also argue, however, that the models and the theories from which they are derived are best understood as frameworks for the analysis and that it is difficult to generalize the conclusions derived from any given case.read less
- ID:
- 9z903987d
- Component ID:
- tufts:UA015.012.DO.00121
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