Yet Another Look at the Modernisation Hypothesis: Evidence from Latin America

We investigate in this paper whether the modernisation hypothesis holds in Latin America, and our sample includes nine Latin American countries that re-democratised in the last forty years or so. The data set covers the period between 1970 and 2007, and the results, based on dynamic panel data analysis (we use the Fixed Effects, Fixed Effects with Instrumental Variables, DIF-GMM and SYS-GMM estimators), suggest that the modernisation hypothesis holds in the region, or that income, or development in general, play a positive role on democracy. We also test for the critical junctures hypothesis, or whether particular historical structural changes play any role in contemporaneous democratisation in the region, however we are not able to provide any concrete evidence in favour of it. Essentially, we suggest that a certain level of development is an important condition for democracy to mature and survive, which-- in times of a new democratisation wave taking place in societies with different levels of development-- is a suggestive observation.Modernisation hypothesis, democracy, development, Latin America

Polarisation, Populism and Hyperinflation[s]: Some Evidence from Latin America

We test for the populist view of state capture in Latin America be- tween 1970 and 2003. The empirical results-based on the relatively novel panel time-series data and analysis - confirm the prediction that recently-elected governments coming into power after periods of po- litical dictatorship, and which are faced with high economic inequal- ity and demand for redistribution, end up pursuing unfunded populist [re] distributive policies. These policies, in turn, lead to bursts of hyper- in?ation and therefore macroeconomic instability in the region. All in all, we suggest that the implementation of democracy as such requires not only the 'right political context'- or a constrained executive-to work well, but it also must come with certain economic institutions, (e.g. central bank independence and a credible and responsible fiscal authority), institutions which would raise the costs of pursuing populist policies in the first place.Polarisation, populism, hyperinflation, Latin America

Young Democracies and Government Size: Evidence from Latin America

We empirically investigate the hypothesis that when democracies are young, or still fragile and unconsolidated, the size of government (in terms of consumption, debt and share to GDP) tends to increase in an attempt to buy out the electorate, so that democracy becomes acceptable and ?the only game in town?. Our sample includes nine Latin American countries between 1970 and 2007 and the results, based on principal component and panel data analyses (POLS, Fixed E¤ects and SYS-GMM estimators), suggest that the young democracies of Latin America have been indeed associated with bigger governments. Furthermore, we test for the hypothesis that the old dictatorships also engaged in activities which would leave the young democracies with bigger de?cits to be repaid, therefore with bigger governments in their initial stages. This hypothesis is not con?rmed by the analysis conducted here. Finally, there is some evidence that as democracies, and also the electorate, mature over time, the size of government shows signs of reduction.Democracy, Government, Latin America

Inflation and Economic Growth in Latin America: Some Panel Time-Series Evidence

In this paper we investigate the role of poor macroeconomic per- formance, in terms of high rates of inflation, in determining economic growth in four Latin American countries between 1970 and 2007. The empirical results, based on the relatively novel panel time-series analy- sis, confirm the anecdotal evidence which suggests that inflation has had a detrimental effect to growth in the region. All in all, we high- light the costs that inflation has had on economic activity, and also the importance of particular economic institutions which were imple- mented in the 1990s - central-bank independence and fiscal responsi- bilities laws- in actually keeping inflation under control in the region, as a first step in the direction of sustained growth and prosperity.Inflation, Growth, Latin America

Democracy, Populism and Hyperinflation[s]: Evidence from Latin America

We test for the populist view of inflation in Latin America between 1970 and 2007. The empirical results - based on the relatively novel panel time-series data and analysis - confirm the theoretical prediction that recently elected governments coming into power after periods of political dictatorship, and which are faced with high economic inequality, end up generating high inflation and macroeconomic instability. All in all, we suggest that the implementation of democracy as such requires not only the 'right political context' - or an appropriately constrained executive - to work well, but it also must come with certain economic institutions (e.g. central bank independence and a credible and responsible fiscal authority), institutions which would raise the costs of pursuing populist policies in the first place. --Polarisation,populism,hyperinflation,Latin America.

Inflation and Financial Development: Evidence from Brazil

We examine the impact of inflation on financial development in Brazil and the data available permit us to cover the period between 1985 and 2002. The results–based initially on time-series and then on panel time-series data and analysis, and robust for different estimators and financial development measures–suggest that inflation presented deleterious effects on financial development at the time. The main implication of the results is that poor macroeconomic performance, exemplified in Brazil by high rates of inflation, have detrimental effects to financial development, a variable that is important for affecting, e.g. economic growth and income inequality. Therefore, low and stable inflation, and all that it encompasses, is a necessary first step to achieve a deeper and more active financial sector with all its attached benefits.Financial development, inflation, Brazil

Inflation and Financial Development: Evidence from Brazil

We examine the impact of inflation on financial development in Brazil and the data available permit us to cover the period between 1985 and 2002. The results?based initially on time-series and then on panel time-series data and analysis, and robust for different estimators and financial development measures?suggest that inflation presented deleterious effects on financial development at the time. The main implication of the results is that poor macroeconomic performance, exemplified in Brazil by high rates of inflation, have detrimental effects to financial development, a variable that is important for affecting, e.g. economic growth and income inequality. Therefore, low and stable inflation, and all that it encompasses, is a necessary first step to achieve a deeper and more active financial sector with all its attached benefits. --Financial development,inflation,Brazil

Inflation and Financial Development: Evidence from Brazil

We examine the impact of inflation on financial development in Brazil and the data available permit us to cover the period between 1985 and 2002. The results ? based initially on time-series and then on panel time-series data and analysis, and robust for different estimators and financial development measures ? suggest that inflation presented deleterious effects on financial development at the time. The main implication of the results is that poor macroeconomic performance has detrimental effects to financial development, a variable that is important for affecting, for example, economic growth and income inequality. Therefore, low and stable inflation, and all that it encompasses, is a necessary first step to achieve a deeper and more active financial sector with all its attached benefits.financial development, inflation, Brazil

Financial Development and Economic Growth in Latin America: Is Schumpeter Right?

In this paper we investigate the role of financial development, or more widespread access to all sorts of finance, in generating economic growth in four Latin American countries between 1980 and 2007. The results, based on panel time-series data and analysis, confirm the Schumpeterian prediction which suggests that finance authorises the entrepreneur to invest in productive activities, and therefore to promote economic growth. Furthermore, given the characteristics of the sample of countries chosen, we highlight not only the importance of a more open, competitive and therefore active financial sector in channelling financial resources to entrepreneurs, but also the relevance of macroeconomic stability (in terms of low inflation rates), and all the institutional framework that it encompasses (central bank independence and fiscal responsibility laws), as a necessary pre-condition for financial development, and consequently for sustained growth and prosperity in the region. --Finance,growth,Latin America

Economic Growth and Government Debt: Evidence from the Young Democracies of Latin America

We investigate in this paper what are the main determinants of government and external debt in Latin America. Our sample includes nine Latin American countries that re-democratised in the last 30 years or so, and the data cover the period between 1970 and 2007. The results, based on principal component and dynamic panel data analyses (we use the Pooled OLS, Fixed Effects, Fixed Effects with Instrumental Variables, DIF-GMM and SYS-GMM estimators), robustly suggest that economic growth, presumably via the automatic stabilisers, has had the ability of reducing debt in the region. Other important candidates suggested by the literature do not present clear-cut estimates on debt. Essentially, this suggests that the tax-smoothing model still holds in Latin America, which in times of debt crisis is very suggestive of the importance of fast economic activity in keeping debt under control.Growth, Debt, Latin America