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Globalization, Domestic Politics, and Social Spending in Latin America: A Time-Series Cross-Section Analysis, 1973–97

Published online by Cambridge University Press:  13 June 2011

Robert R. Kaufman
Affiliation:
Rutgers University
Alex Segura-Ubiergo
Affiliation:
Columbia University

Extract

This study examines the effects of globalization, democratization, and partisanship on social spending in fourteen Latin American countries from 1973 to 1997, using a pooled time-series error-correction model. The authors examine three sets of issues. First, following debates in the literature on OECD countries, they want to know whether social spending has been encouraged or constrained by integration into global markets. Within this context, they examine the extent to which such outcomes might be influenced by two additional sets of domestic political and institutional factors discussed in work on developed countries: the electoral pressures of democratic institutions and whether or not popularly based governments are in power.

The authors show that trade integration has a consistently negative effect on aggregate social spending and that this is compounded by openness to capital markets. This is the strongest and most robust finding in the study. Neither democratic nor popularly based governments consistently affect overall social spending. The authors then disaggregate spending into social security transfers and expenditures on health and education. They find that popularly based governments tend to protect social security transfers, which tend toflowdisproportionately to their unionized constituencies; but they have a negative impact on health and education spending. Conversely, a shift to democracy leads to increases in health and education spending, which reaches a larger segment of the population. The authors conclude by emphasizing the contrasting political log-ics of the different types of social spending.

Type
Research Article
Copyright
Copyright © Trustees of Princeton University 2001

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References

1 See Rodrik, , Has Globalization Gone Too Far? (Washington, D.C.: Institute for International Economics, 1997)Google Scholar.

2 Because of missing or noncomparable data, we were unable to include Colombia, Cuba, Haiti, Honduras, Nicaragua, and Panama.

3 Garrett, “Globalization and Government Spending around the World” (Paper presented at the annual meeting of the American Political Science Association, Atlanta, September 1-5, 1999).

4 Beck, Nathaniel and Katz, Jonathan, “What to Do (and Not to Do) with Time-Series Cross-Section Data,” American Political Science Review 89 (September 1995)CrossRefGoogle Scholar; and idem, “Nuisance versus Substance: Specifying and Estimating Time-Series Cross-Section Models,” Political Analysis 6 (July 1996)Google Scholar.

5 Garrett (fn. 3).

6 Rogowski, Ronald, Commerce and Coalitions (Princeton: Princeton University Press, 1989)Google Scholar.

7 odrik (fn. 1), 46.

8 Stallings, Barbara and Peres, Wilson, Growth, Employment and Equity: The Impact ofEconomic Reform in Latin America and the Caribbean (Washington, D.C.: Brookings Institution Press, 2000)Google Scholar.

9 Nita Rudra, “Globalization and the Decline of the Welfare State in Less Developed Countries,” International Organization (forthcoming).

10 See, for example, Cameron, David, “The Expansion of the Public Economy: A Comparative Analysis,” American Political Science Review 72 (December 1978)CrossRefGoogle Scholar; and Katzenstein, Peter, Small States in WorldMarkets (Ithaca, N.Y.: Cornell University Press, 1985)Google Scholar.

11 Garrett (fn. 3); and Rodrik (fn. 1).

12 Pierson, Paul, “The New Politics of the Welfare State,” World Politics 48 (January 1996)CrossRefGoogle Scholar; and Hicks, Alexander, Social Democracy and Welfare Capitalism: A Century ofIncome Security Politics (Ithaca, N.Y.: Cornell University Press, 1999)Google Scholar.

13 Rudra (fn. 9).

14 Haggard, Stephan and Kaufman, Robert R., The Political Economy of Democratic Transitions (Princeton: Princeton University Press, 1995)Google Scholar.

15 The distributional impact of social spending is still subject to empirical debate. One important study conducted under the auspices of the UN Economic Commission on Latin America and the Caribbean finds that social spending had a positive impact on the lowest quintile in Argentina, Brazil, Chile, and Colombia. See Mostajo, Rossana, “Gasto social y distributión del ingreso: caracterización e impacto redistnbutivo en países seleccionados de América Latina y el Caribe,” Serie Reformas Económicas 69 (Santiago: ECLAC, 2000)Google Scholar.

16 Brown, David S. and Hunter, Wendy, “Democracy and Social Spending in Latin America, 1980-92,” American Political Science Review 93 (December 1999)CrossRefGoogle Scholar. See also George Filho Avelino, “Economic Crisis, Democratization, and Social Expenditure in Latin America, 1980-1994” (Ph.D. diss., Stanford University, 2000).

17 See the studies by Garrett (fn. 3); Rodrik (fn. 1); and Rudra (fn. 9).

18 Mesa-Lago, Carmelo, Social Security in Latin America: Pressure Groups, Stratification, and Inequality (Pittsburgh, Pa.: University of Pittsburgh Press, 1978)Google Scholar.

19 Mesa-Lago, CarmeloAscent to Bankruptcy: Financing Social Security in Latin America (Pittsburgh, Pa.: Pittsburgh University Press, 1989), 41Google Scholar.

20 Garrett (fn. 3); and Rodrik (fn. 1).

21 Huber, Evelyne, “Options for Social Policy in Latin America: Neoliberal versus Social Democratic Models,” in Esping-Andersen, Gosta, ed., Welfare States in Transition: NationalAdaptations in Global Economies (London: Sage Publications, 1996)Google Scholar; and Nelson, Joan, “The Politics of Pension and Health-Care Delivery: Reforms in Hungary and Poland,” in Kornai, Janos, Haggard, Stephan, and Kaufman, Robert R., eds., Reforming the State: Fiscal and Welfare Reform in Post-Socialist Countries (New York: Cambridge University Press, 2000)Google Scholar.

22 International Monetary Fund, Government Finance Statistics (Washington, D.C.: IMF, various years)Google Scholar.

23 Garrett (fn. 3) uses general government consumption expenditures, but this is based on cross-sectional averages and does not include transfer payments.

24 Economic and Social Commission on Latin America and the Caribbean (FXLAC), Social Panorama ofLatin America (Santiago, Chile: ECLAC, 1999)Google Scholar.

25 See, for example, Hicks, Alexander M. and Swank, Duane H., “Politics, Institutions and Welfare Spending in Industrialized Democracies, 1960—1982,” American Political Science Review 86 (September 1992)Google Scholar; Huber, Evelyne and Stephens, John, Development and Crisis ofthe Welfare State: Parties and Policies in GlobalMarkets (Chicago: University of Chicago Press, 2001)CrossRefGoogle Scholar; Iversen, Torben and Cusack, Thomas R., “The Causes of Welfare State Expansion: Deindustrialization or Globalization?” World Politics 52 (April 2000)CrossRefGoogle Scholar; Rodrik (fn. 1); and Garrett (fn. 3).

26 Samuel Morley, Roberto Machado, and Stefano Pettinato, “Indexes of Structural Reform in Latin America” (Santiago, Chile: ECLAC Economic Development Division, LC/L.1166, January 1999).

27 See Garrett's discussion of these issues (fn. 3); and Dennis Quinn, “The Correlates of Change in International Financial Regulation,” American Political Science Review 91 (September 1997).

28 Alvarez, Michael, Cheibub, Jose Antonio, Limongi, Fernando, and Przeworski, Adam, “Classifying Political Regimes,” Studies in Comparative International Development 31 (Summer 1996)CrossRefGoogle Scholar; and Keith Jaggers and Ted Robert Gurr, Polity III: Regime Type and Political Authority, 1800-1994 (ssdc.ucsd.edu/ssdc/icpO6695.html), consulted September 2000.

29 We have also tried other specifications of democracy such as (1) using a continuous measure or (2) changing the cutting point from 6 to 7 or 5. We did not see any significant changes in the results.

30 Krugman, Paul, InternationalEconomics (New York: Addison-Wesley Longman, 1999)Google Scholar.

31 We also ran the regressions substituting year dummies for decade dummies. This did not significantly affect the results.

32 See Garrett (fn. 3); and Huber and Stephens (fn. 25).

33 Garrett (fn. 3).

34 Beck and Katz (fn. 4).

35 Sayrs, Lois, PooledTime Series Analysis (London: Sage Publications, 1989)Google Scholar.

36 The failure to address these technical problems has called into question the findings of a number of earlier studies. For example, in a replication of Hicks and Swank's (fn. 25) influential study of OECD spending, only four of thirteen political and institutional variables reach conventional levels of significance when panel corrected standard errors are used; see Beck and Katz (fn. 4).

37 This model is equivalent to the one described by Beck and Katz (fn. 4), in which the authors explain the importance of separating short-term from long-term effects in dynamic models (see Appendix 2).

38 See William Greene, Econometric Analysis, 4th ed. (Upper Saddle River, N. J.: Prentice Hall, 2000), 733-35; Banerjee, Anindya, Dolado, Juan, Galbraith, John, and Henry, David, Co-Integration, Error Correction, and the Econometric Analysis of Non-Stationary Data (Oxford: Oxford University Press, 1993)CrossRefGoogle Scholar.

39 A sequential series of regressions, which excluded one country at a time, shows that these results are not driven by any given country. To check for possible outliers, we used robust regressions that use D-beta and Cook distances to correct for unusually deviant observations; the results obtained were very similar.

40 See Appendix 1 for the formula used in these calculations.

41 Morley, Machado, and Pettinato (fn. 26).

42 Quinn (fn. 27) also finds a positive relation in his study of OECD countries, as does Garrett (fn. 3) in his global sample.

43 See Frieden, Jeffry, Debt, Development, and Democracy (Princeton: Princeton University Press, 1991)Google Scholar; and Rodrik (fn. 1).

44 Note that in the interaction model, the simple coefficients for trade and capital are necessary as controls but substantively meaningless. The coefficient for each uninteracted variable measures its impact when the value of the other variable is zero. See Friedrich, Robert, “In Defense of Multiplicative Terms,” American Journal of Political Science 26 (November 1982)CrossRefGoogle Scholar.

45 We are grateful to William Roberts Clark, Department of Politics, New York University, for his methodological advice and assistance in this portion of the paper.

46 Brown and Hunter (fn. 16).

47 See ECLAC (fn. 24); and Brown and Hunter (fn. 16).

48 See ECLAC (fn. 24); and Stallings and Peres (fn. 8).

49 Mesa-Lago (fn. 19).

50 For a discussion of the European cases, see Esping-Andersen, Gosta, The Three Worlds of Welfare Capitalism (Princeton: Princeton University Press, 1990)Google Scholar; and idem (fn. 21). See also Pierson (fn. 12).

51 See ECLAC (fn. 24).

52 See Mostajo (fn. 15).

53 See, for example, Nelson, Joan M., “Social Costs, Social-Sector Reforms, and Politics in Post-Communist Transformations,” in Nelson, Joan M., Tilly, Charles, and Walker, Lee, eds., 'Transforming Post-Communist PoliticalEconomies (Washington, D.C.: National Academy Press, 1997)Google Scholar.

54 Brown and Hunter (fn. 16).

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