Guillermo Rosas

Foreign Direct Investment and Income Inequality in Mexico, 1990-2000

In this article we explore the relationship between the investments of multinational corporations (foreign direct investment) and income inequality in Mexico. We argue that Mexicos liberalization of foreign direct investment (FDI) inflows in the 1990s provides a natural experiment to test how FDI affects income inequality in a middle-income country. We use an instrumental variables approach as our identification strategy to mitigate problems of endogeneity and omitted variable bias. In an empirical test of the determinants of changes in income inequality from 1990 to 2000, we find that increased FDI inflows are associated with a decrease in income inequality within Mexicos thirty-two states.The authors would like to thank Lawrence Broz, John Freeman, Matt Gabel, Geoff Garrett, Quan Li, Eddy Malesky, Layna Mosley, Katie Ridgeway, Pablo Pinto, John Stringer, and Andy Sobel for comments and suggestions. Jacob Gerber and Mariana Medina provided excellent research assistance. Thanks also to Patricio Aroca Gonzalez for generously providing us with his data. We acknowledge the financial support of the Weidenbaum Center on the Economy, Government, and Public Policy. Nate Jensens contribution to this article was written as a Global Fellow at UCLAs International Institute.

The Ideological Organization of Latin American Legislative Parties An Empirical Analysis of Elite Policy Preferences

Are legislative party systems in Latin America organized along ideological lines? This article presents a cross-country analysis of legislators’ positions on a variety of issues, such as government intervention in the economy, the value of democratic competition, attitudes toward cultural minorities, and views on international openness. The study is based on discriminant analysis of data from a 1997 survey of legislators in 12 countries. The purpose is to explore whether legislative parties in the region are ideologically organized and if so, to understand the substance and structure of the ideological dimensions that underlie legislative party systems. The analysis reveals variation in the programmatic organization of Latin American legislatures, emphasizing that political, cultural, and economic dimensions coalesce in different ways across countries to account for ideological disagreement among legislative parties.

Gubernatorial Effects on the Voting Behavior of National Legislators

Are subnational political elites, such as governors, capable of affecting the voting behavior of national representatives even in the face of high legislative discipline? We address this question by estimating the exogenous causal effect of gubernatorial influence on the voting behavior of national legislators in Mexico, where constitutional provisions guarantee that the political survival times of governors and legislators are fixed and known ex ante and where we can thus know precisely which legislators will leave congress before their state governor’s term has expired. We posit that such legislators will be more willing to represent gubernatorial preferences because they expect the governor to find them employment upon finishing their stay in congress. We find that governors whose terms end after the term of the national assembly are able to systematically increase the voting cohesion of legislators from their own party and state and that these effects are substantively important.

Models of Nonresponse in Legislative Politics

Tools dedicated to inferring the ideological leanings of legislators from observed votes—techniques such as NOMINATE (Poole and Rosenthal 1997) or the item-response-theory model of Clinton, Jackman, and Rivers (2004)—rest on the assumption that the political process that generates abstentions is ignorable, an assumption not always easy to justify. We extended the item-response-theory model to analyze abstention and voting processes simultaneously in situations where abstentions are suspected to be nonrandom. We applied this expanded model to two assemblies where the existing literature gives reason to expect nonrandom abstentions, and we demonstrate how our extensions yield nuanced analyses of legislative politics. We also acknowledge limits to our ability to decide on the adequacy of alternative assumptions about abstentions, since these assumptions are not readily verifiable.

Curbing Bailouts: Bank Crises and Democratic Accountability in Comparative Perspective

Do democratic governments and authoritarian regimes respond to banking crises in the same way? Banking crises threaten the stability and growth of economies around the world. In response, politicians restore banks to solvency by redistributing losses from bank shareholders and depositors to taxpayers. Whereas some governments stay close to the prescriptions espoused by Sir Walter Bagehot in the 19th century that limit the costs shouldered by taxpayers, others engage in generous bank bailouts at great cost to society. In this comparative analysis of late 20th-century banking crises, Guillermo Rosas identifies political regime type as the determining factor. Compared with authoritarian regimes, democratic regimes show a lower propensity toward dramatic, costly bailouts.

Political Liabilities Surviving Banking Crises

Little is known about the political repercussions of banking crises despite the extensive literature on the link between economic performance and political outcomes. We develop a theory of how clarity of responsibility affects incumbent party survival patterns in 89 democracies between 1975 and 2005. Our results are robust to modeling strategies that include hazard models with shared frailties to account for country-specific factors that affect incumbent survival. We find that globalization weakens the accountability link between politicians and voters. Incumbents in countries with open capital accounts are much more likely to survive a banking crisis than incumbents in closed economies. We do not find conclusive evidence that divided governments or those with multiple veto players enjoy higher survival rates after banking crises; in fact, the opposite seems to be true. We conclude with a discussion of the paradoxical relationship that openness brings to incumbents: greater exposure to foreign shocks and reduced electoral punishment for banking crises.

Local public goods as vote-purchasing devices? Persuasion and mobilization in the choice of clientelist payments

We consider the behavior of an incumbent that can deploy local public goods and private goods to buy votes, and is unable to verify vote choice but capable of monitoring voter turnout, a common scenario in secret-ballot polities. As advanced by recent literature, the ability to monitor turnout rather than vote choice implies that politicians should use targetable private goods to mobilize voters. However, politicians also deploy non-excludable local public goods, which have low mobilization potential because of free-rider incentives. We argue that vote-buying politicians reserve local public goods for loyal constituencies (where they enjoy support from most voters that bother to turn out) and provide private goods in other constituencies where they gain from motivating less committed supporters to turn out. We test aggregate-level implications of our theory on Venezuela’s social programs.

When do autonomous banking regulators promote stability

Can autonomous banking regulatory agencies reduce the odds that a country will suffer a crippling banking crisis? We investigate the impact that agencies charged with banking regulation and prudential supervision can have on financial stability in the banking sector. We argue that the potential benefits of autonomy are hard to realise because banking regulators face incentives to shirk in their mandate to secure banking stability. These incentives are strongest in political systems with high numbers of veto players, where the autonomy of a banking agency is difficult to undo even if the agency is derelict in promoting banking sector stability.We test an implication of this argument, namely, that the probability of bank crisis onset should diminish with the level of autonomy of the banking agency, but only in polities with low numbers of veto points.We base our analysis of this conditional hypothesis on an original dataset of 79 countries observed between 1971 and 2009 that captures the degree of autonomy of banking agencies from political principals. Our findings confirm that the impact of banking agency autonomy

Central Banks and Banking Regulation: Historical Legacies and Institutional Challenges

Jordana and Rosas explore the different institutional models for the regulation of banks and financial services that exist worldwide. They find, on the one hand, many countries in which central banks have significant responsibilities for the regulation of the banking system, but also, on the other hand, countries where banking regulation is completely separated from the central bank, remaining in the hands of the executive or being delegated to an independent agency without subordination to the central bank. The chapter identifies the distribution of institutional regulatory models around the world, the possibility of path dependence in the choice of these models, and the relationship between these institutional models and the objectives of price stability and bank stability in different economies.