Panel Paper: The Origins of Anti-Market Political Ideology: Evidence from Mining Shocks

Saturday, November 10, 2018
Madison A - Mezz Level (Marriott Wardman Park)

*Names in bold indicate Presenter

Mariella Gonzales, University of Chicago

Over the past 20 years, anti-market political parties in Latin America have emerged and succeed. This wave started with Hugo Chavez, who took the presidency in Venezuela in 1998. Afterwards, other left-leaning presidents took office around the region. By 2009, two-thirds of Latin Americans lived under left-leaning governments (Levitski and Roberts, 2011). The type of public policies anti-market parties apply raises concerns about the country's macroeconomic stability (fiscal deficit, high inflation, low private investment rates) and, more generally, about mass migration from one country to the whole region. An improved understanding of the role of income shocks and inequality on how anti-market parties emerge and what are their success' drivers is a key input for policy-making. It will allow the government to generate better compensation schemes for local communities and evade radicalization of political organizations. The empirical evidence documenting the different mechanisms that affect vote share for anti-market parties, if quantitative, is based on cross-country variation. However, several empirical challenges contest the results of these type of studies.

I gather panel data on mining and sub-national and presidential elections in about 1,800 districts in Peru over the period 2006-2016 to explain the origins of anti-market and radicalized economic ideology. This paper will answer the question if economic shocks, in particular a natural resource shock, have any impact on political choices for anti-market parties. These parties advocate against private investments, support price ceilings and oppose a free trade agenda. I classify these parties using their publicly available platforms.

To account for potential endogeneity in the mining production, I employ a source of plausibly exogenous variation for each variable related to mining activities and I obtain instrumental variables (IV) estimates of the parameters of interest. More specifically, I exploit the heterogeneity in metal potential across the territory and the timing of fluctuations in the world price of metals as sources of plausibly exogenous cross sectional and time series variation, respectively in mining activity. The metal potential variable is constructed using novel data collected from 132 geological books released by the Peruvian Government between 1960 and 1999. These books guided metal exploration decisions across the country.