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Political Behavior
Published in: Political Behavior 4/2023

03-05-2022 | Original Paper

Economic Growth and Political Approval Ratings: Evidence from Latin America

Authors: Rodrigo Cerda, Rodrigo Vergara

Published in: Political Behavior | Issue 4/2023

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Abstract

Using a panel of 17 Latin American countries for the period 2002–18, we study the impact of economic variables on government approval. Our empirical analysis shows that the one economic variable that appears consistently in all estimates is economic growth. More specifically, we show that for each point of additional growth, the approval rating increases between 1.1 and 1.9 percentage points. Other variables, such as inflation, government spending, and the composition of spending, are significant in only some of the specifications used, while growth is remarkably robust in all of them. Among non-economic variables, the lack of solid institutions also appears consistently as significant as well as the lagged value of government approval ratings. These results suggest that a program focused on growth has a positive influence on the popularity of the government. This conclusion is particularly relevant in a region where populism has been remarkably persistent over time and where the norm has been to run large budget deficits to gain popular support, with consequences on inflation and the external accounts.
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Footnotes
1
Our data indicate that Venezuela exhibits extreme variation in some variables, such as inflation. In fact, since 2014 Venezuela's inflation rate has exceeded 100%, and it reached 65,000% in 2018. We decided to exclude this country to avoid the classic sensitivity problem to outlier observations. Our decision is particularly important because of the instability of economic coefficients in the literature on vote-popularity functions (see Sect. "Literature review"). This decision is congruent with research that excludes Venezuela for this reason (see, for instance, IMF 2021).
 
2
Depending on the commodity, prices started a downward trend between 2011 and 2014.
 
3
See, for instance, the survey by Gronke and Newman (2003).
 
4
However, in the 2000 paper, the author finds that U.K. voters generally have a remarkably acute sense of macroeconomic improvement and decline.
 
5
Average government approval excludes the years 2012 and 2014, when the Latinobarómetro survey was not conducted.
 
6
The fiscal deficit in Latin America and the Caribbean was 2.3% of GDP in 2009, a big fall from a surplus of 1.6% in 2008 (IMF, World Economic Outlook Database, October 2020).
 
7
The countries are Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, and Uruguay.
 
8
The countries are Argentina, Bolivia, Brazil, Chile, Colombia, Costathat directly involve the president is from Martínez (2020). The victimization rate and the measure of distrust in institutions are from ECLAC statistical database; both variables are prepared by the ECLAC Social Statistics Unit, based on special tabulations from the Latinobarómetro database.
 
9
We decided to use random effects rather than fixed effects because the results of the Hausman test indicate that there is no evidence to reject the null hypothesis. In other words, we cannot rule out that there is no correlation between the unobserved effect and the explanatory variables. In this context, random- and fixed-effects estimators are consistent, but fixed-effects estimators are inefficient. The same conclusion is obtained for all the specifications of tables 3, 4, and 5.
 
10
However, this result is not robust as shown in the estimations below.
 
11
The results of the endogeneity test for fiscal spending measures indicate that it is not possible to reject the null hypothesis of exogeneity. However, we consider it necessary to show the results of the two-stage least squares estimations for three reasons. First, the theoretical justification for the endogeneity problem is plausible and thus needs to be addressed. Second, it is technically impossible to directly test the endogeneity of a variable since, by definition, the econometrician cannot observe the correlation between the variable and the unobservable error. Therefore, endogeneity problems cannot be ruled out categorically. Third, the two-stage approach allows us to compare across different statistical methods and to check the robustness of the results.
 
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Metadata
Title
Economic Growth and Political Approval Ratings: Evidence from Latin America
Authors
Rodrigo Cerda
Rodrigo Vergara
Publication date
03-05-2022
Publisher
Springer US
Published in
Political Behavior / Issue 4/2023
Print ISSN: 0190-9320
Electronic ISSN: 1573-6687
DOI
https://doi.org/10.1007/s11109-022-09798-y

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