nep-pol New Economics Papers
on Positive Political Economics
Issue of 2016‒09‒25
ten papers chosen by
Eugene Beaulieu
University of Calgary

  1. Importing Political Polarization? The Electoral Consequences of Rising Trade Exposure By Autor, David; Dorn, David; Hanson, Gordon; Majlesi, Kaveh
  2. Fragmented Politics and Public Debt By Ernesto Crivelli; Sanjeev Gupta; Carlos Mulas-Granados; Carolina Correa-Caro
  3. Trump, Brexit, and the Rise of Populism: Economic Have-Nots and Cultural Backlash By Inglehart, Ronald F.; Norris, Pippa
  4. Does working abroad affect political opinions? Evidence from Moldova By Ruxanda Berlinschi
  5. Ideological Perfectionism By Chen, Daniel L.; Michaeli, Moti; Spiro, Daniel
  6. Crony Capitalism in Mozambique: Evidence from Networks of Politicians and Businessmen By Andes Chivangue
  7. The Political Economy of Geographical Indications By Koen Deconinck; Martijn Huysmans; Johan Swinnen
  8. The political economy of twin deficits and wage setting centralization By Hamzeh Arabzadeh
  9. Emigration and democracy By Frédéric DOCQUIER; Elisabetta LODIGIANI; Hillel RAPOPORT; Maurice SCHIFF
  10. The Power of Money: Wealth Effects in Contest By Schroyen, Fred; Treich, Nicolas

  1. By: Autor, David; Dorn, David; Hanson, Gordon; Majlesi, Kaveh
    Abstract: Has rising trade integration between the U.S. and China contributed to the polarization of U.S. politics? Analyzing outcomes from the 2002 and 2010 congressional elections, we detect an ideological realignment that is centered in trade-exposed local labor markets and that commences prior to the divisive 2016 U.S. presidential election. Exploiting the exogenous component of rising trade with China and classifying legislator ideologies by their congressional voting record, we find strong evidence that congressional districts exposed to larger increases in import competition disproportionately removed moderate representatives from office in the 2000s. Trade-exposed districts initially in Republican hands become substantially more likely to elect a conservative Republican, while trade-exposed districts initially in Democratic hands become more likely to elect either a liberal Democrat or a conservative Republican. Polarization is also evident when breaking down districts by race: trade-exposed locations with a majority white population are disproportionately likely to replace moderate legislators with conservative Republicans, whereas locations with a majority non-white population tend to replace moderates with liberal Democrats. We further contrast the electoral impacts of trade exposure with shocks associated with generalized changes in labor demand and with the post-2006 U.S. housing market collapse.
    Date: 2016–09
  2. By: Ernesto Crivelli; Sanjeev Gupta; Carlos Mulas-Granados; Carolina Correa-Caro
    Abstract: In this paper, we study the impact of fragmented politics on public debt—in particular, between two consecutive legislative elections. Using data for 92 advanced and developing countries during 1975-2015, we find a positive association between political fragmentation and public debt changes. Corruption magnifies the effects; with higher perceived corruption, political fragmentation has a bigger sway on debt increases. The influence of political fragmentation on debt dynamics is somewhat asymmetric, with larger and more significant effects during periods of debt reduction. Establishment of fiscal councils helps attenuate the negative impact of political fragmentation on public debt dynamics.
    Date: 2016–09–19
  3. By: Inglehart, Ronald F. (University of michigan); Norris, Pippa (Harvard University)
    Abstract: Rising support for populist parties has disrupted the politics of many Western societies. What explains this phenomenon? Two theories are examined here. Perhaps the most widely-held view of mass support for populism--the economic insecurity perspective--emphasizes the consequences of profound changes transforming the workforce and society in post-industrial economies. Alternatively, the cultural backlash thesis suggests that support can be explained as a reaction against cultural changes that threaten the worldview of once-predominant sectors of the population. To consider these arguments, Part I develops the conceptual and theoretical framework. Part II of the study uses the 2014 Chapel Hill Expert Survey (CHES) to identify the ideological location of 268 political parties in 31 European countries. Part III compares the pattern of European party competition at national-level. Part IV uses the pooled European Social Survey 1-6 (2002-2014) to examine the cross-national evidence at individual level for the impact of the economic insecurity and cultural values as predictors of voting for populist parties. Part V summarizes the key findings and considers their implications. Overall, we find consistent evidence supporting the cultural backlash thesis.
    Date: 2016–08
  4. By: Ruxanda Berlinschi
    Abstract: This paper investigates the effects of work experience abroad on political opinions using survey data from Moldova, a former soviet republic caught in an ideological battle between Russia and the West, with high emigration rates to both destinations. Contrarily to studies conducted in Africa or Latin America, we find no effect of past migration on democratic participation or on critical governance assessment. Likewise, no effect is found on domestic policy preferences. The one dimension strongly associated with migration experience is geopolitical preference, whereby return migrants from former Soviet countries are more likely to support closer ties with Russia, while return migrants from Western countries show higher support for EU integration, controlling for economic, demographic and ethnic confounding factors. For identification, we instrument individual migration with district level migrant networks. IV regressions show that only work experience in Western countries affects geopolitical preferences.
    Keywords: return migration, political opinions, Moldova, survey data.
    JEL: P3 J61 D72 D83
    Date: 2016
  5. By: Chen, Daniel L.; Michaeli, Moti; Spiro, Daniel
    Abstract: Studying a high-stakes field setting, we examine which individuals, on an ideological scale, conform more to the opinion of others. In the U.S. Courts of Appeals, legal precedents are set by ideologically diverse and randomly composed panels of judges. Using exogenous predictors of ideology and rich voting data we show that ideological disagreements drive dissents against the panel’s decision, but ideologically extreme judges are caving in: they are the least likely to dissent and their voting records are the least correlated with their predicted ideology. Meanwhile, moderately ideological judges are dissenting the most despite evidence that they are more often determining the opinion. Our theoretical analysis shows that these findings are most consistent with a model of decision making in the presence of peer pressure with a concave cost of deviating from one’s ideological convictions – perfectionism. This result presents a critique of a standard assumption in economics – that the cost of deviating from one’s bliss point is convex – with fundamental implications for decision making in social and political settings and for the empirical predictions of theoretical models in these domains.
    Keywords: Judicial decision making, group decision making, ideology, peer pressure.
    JEL: D7 K00 Z1
    Date: 2016–09
  6. By: Andes Chivangue
    Abstract: This paper discusses crony capitalism in Mozambique, by analysing the social networks that exist among political and economic players, using the SNA Social Networks Analysis method. The variables are selected to identify cliques and the covariates that explain this network relationship are taken into account, namely military, ethnicity, family, politics, business, entrepreneurship, political party and gender. Policy implications are derived.
    Keywords: Mozambique, social networks, crony capitalism, multivariate analysis, policy implications
    Date: 2015–07
  7. By: Koen Deconinck; Martijn Huysmans; Johan Swinnen
    Abstract: In this article we study the political process that governs the creation and size of new Geographical Indications (GIs). Producers can choose to apply for a GI and subsequently go through a bargaining process with the government. We derive the optimal GI area from the point of view of consumers, producers, social welfare, and the government; and we show how bargaining leads to a GI size in between the applicant’s optimum and the government’s optimum. Under the assumption that the non-GI good is a commodity, any GI implemented through the political process is welfare-enhancing, but not all welfare-enhancing GIs will be proposed by producers.
    Date: 2015
  8. By: Hamzeh Arabzadeh (Paris School of Economics, Université Paris 1 Panthéon-Sorbonne, CES and UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))
    Abstract: This paper contributes to the literature on current account imbalances. Econometric analysis of the paper finds evidence that wage centralization, in a cross-section of industrialized economies, significantly improve current accounts through reducing budget deficits. To explain this empirical finding, the paper provides a political economy framework in which the government follows preferences of N-sector workers (majority rule). An increase in public and so, current account deficits by issuing external public debt leads to real appreciation of the currency. As between-sector mobility is constrained by friction in the labor market, wages in N-sector rises. The opposite happens if the government improves the two balances by rising its saving. Thus, N-sector workers relatively support (oppose) more a rise (reform) in the two deficits. Centralization of wage bargaining moderates the benefit and costs from such twin-deficit policies by reducing the responsiveness of sectoral wage with respect to sectoral prices. Thus, the more centralized is the wage determination, the less N-sector workers support (oppose) a rise (reform) in the two deficits. Correspondingly, more centralized wage bargaining reduces the government's political incentive (cost) to deteriorate (reform) the external balance through the fiscal balance.
    Keywords: Twin deficits, Current account imbalances, Dutch disease, Search and Match, Wage bargaining Centralization, Real Exchange rate
    JEL: F32 E62 J31 J51 J6 F41
    Date: 2016–08–27
  9. By: Frédéric DOCQUIER (Université Catholique de Louvain); Elisabetta LODIGIANI (FERDI); Hillel RAPOPORT (FERDI); Maurice SCHIFF (FERDI)
    Abstract: International migration is an important determinant of institutions, not considered so far in the development literature. Using cross-sectional and panel estimation for a large sample of developing countries, we find that openness to emigration (as measured by the natives’ average emigration rate) has a positive effect on home-country institutional development (as measured by standard democracy indices). The results are robust to a wide range of specifications and identification methods. Remarkably, the cross-sectional estimates are fully in line with the implied long-run relationship from dynamic panel regressions.Keywords: Migration; Institutions; Democracy; Development.
    Keywords: migration, institutions, democracy, Development
    JEL: O15 O43 F22
    Date: 2016–07
  10. By: Schroyen, Fred; Treich, Nicolas
    Abstract: The relationship between wealth and power has long been debated. Nevertheless, this relationship has been rarely studied in a strategic game. In this paper, we study wealth effects in a strategic contest game. Two opposing effects arise: wealth reduces the marginal cost of effort but it also reduces the marginal benefit of winning the contest. We consider three types of contests which vary depending on whether rents and efforts are commensurable with wealth. Our theoretical analysis shows that the effects of wealth are strongly "contestdependent". It thus does not support general claims that the rich lobby more or that low economic growth and wealth inequality spur conflicts.
    Keywords: Conflict, contest, rent-seeking, wealth, risk aversion, lobbying, power, redistribution.
    JEL: C72 D72
    Date: 2016–09

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