nep-lam New Economics Papers
on Central and South America
Issue of 2017‒06‒18
three papers chosen by
Maximo Rossi
Universidad de la República

  1. Money and Politics: The Effects of Campaign Spending Limits on Political Competition and Incumbency Advantage By Eric Avis; Claudio Ferraz; Frederico Finan; Carlos Varjão
  2. Frustration and voting behavior: Evidence from stock market data By Carlos Viana de Carvalho; Eduardo Zilberman
  3. FDI Flows to Latin America: A Pooled and Cointegration Analysis, 1980-2014. By Miguel D. Ramirez

  1. By: Eric Avis (UC Berkeley); Claudio Ferraz (Department of Economics, PUC-Rio); Frederico Finan (UC Berkeley); Carlos Varjão (Stanford)
    Abstract: This paper examines the effects of campaign spending limits on political competition and incumbency advantage. We study a reform in Brazil that imposed limits on campaign spending for mayoral elections. These limits were implemented with a discontinuous kink which we exploit for causal identification. We find that stricter limits increase political competition by creating a larger pool of candidates that is on average less wealthy. Moreover, we find that stricter spending limits reduce the incumbency advantage, causing mayors to be less likely to be reelected. These findings are consistent with a contest model with spending caps and endogenous candidate entry.Creation-Date: 2017-06
  2. By: Carlos Viana de Carvalho (Central Bank of Brazil and Department of Economics, PUC-Rio); Eduardo Zilberman (Department of Economics, PUC-Rio)
    Abstract: We document that a huge frustration shock, clearly unrelated to government’s actions, was perceived to lead to substantial punishment at the polls months later. In particular, we provide evidence that Brazil’s 7-1 humiliating defeat to Germany in the 2014 World Cup was perceived by financial market participants as a political shock against the incumbent president. To do so, we explore an empirical strategy that allows us to extract daily political news content from stock market data. Among the many events that affected the convoluted 2014 presidential election, the 7-1 defeat to Germany was among those perceived to have high political impact. We propose an explanation whereby this huge frustration shock triggered a transfer of domains that led Brazilians to update their beliefs regarding government’s poor performance.Creation-Date: 2017-04
  3. By: Miguel D. Ramirez (Department of Economics, Trinity College)
    Abstract: This paper estimates a pooled (fixed-effects) FDI investment function that seeks to identify some of the major economic and institutional determinants of net FDI flows to nine major Latin American countries during the 1980-2014 period. First, it develops a conceptual framework of analysis that seeks to identify some of the major economic and institutional determinants of FDI. Second, the paper gives an overview of FDI flows to Latin America during the 1990-2015 period, with particular emphasis on their contribution to the financing of gross capital formation. Third, an empirical model for FDI flows to Latin America is outlined and an economic rationale is provided for the included variables and their expected signs. Fourth, the estimates from a panel regression designed to explain the variation in FDI flows to Latin America during the 1980-2014 period suggests that market size (proxied by real GDP), credit provided by the private banking sector, government expenditures on education, and the level of economic freedom as measured by the Fraser Institute have a positive and significant effect. On the other hand, public investment spending, the volatility of real GDP and the real exchange rate have a negative and significant effect on FDI flows. The panel unit root tests on the residuals of the relevant panel regressions also suggest that there is a stable, long-term relationship among the included variables; i.e., the selected variables in the reported regressions are cointegrated over the relevant time period.Finally, the paper summarizes the major findings and offers some policy prescriptions for attracting FDI flows to the region and enhancing their positive direct and indirect effects.
    Keywords: ADF Fisher statistic. Economic Freedom Index (EFI), Foreign Direct Investment (FDI), Latin America, Panel Unit Root Tests, Pedroni Residual Cointegration Test, Pooled Regression, Remittances of FDI profits, and Seemingly Unrelated Regression (SUR).
    JEL: C22 C23 F40 O50
    Date: 2017–06

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