How Populism Harms Prosperity: Unified Populist Rule Reduces Investment, Innovation, and Productivity

67 Pages Posted: 9 Sep 2022

See all articles by Beatrice Magistro

Beatrice Magistro

University of Toronto

Victor A. Menaldo

University of Washington - Department of Political Science; UW Political Economy Forum

Date Written: August 25, 2022

Abstract

The economic cost of populism is high. This paper finds that when a populist executive rules alongside a populist majority in the legislature, this reduces a country’s growth rate of real Per Capita Income by 3.7% below its trend, a phenomenon that spans over a 12-year period before returning to the pre-populist equilibrium. We also outline the mechanics behind these numbers, and provide systematic evidence for our argument. Populists from either the left or right, in rich or poor countries, in nations open to trade or more autarkic ones, and across both liberal democracies and authoritarian regimes, tend to converge on a similar political economic model: protectionism, crony capitalism, and redistribution. This undermines productivity by increasing the size of government without parallel investments in infrastructure, basic science, and education, and by reducing private investment, R&D spending, researchers per capita, and patents per capita. We arrive at these findings by estimating ARDL dynamic panel models via System GMM, which increases our confidence that these long run effects run from populism to economic underdevelopment. To do so, we introduce a new measure of populism that identifies whether populists control both the executive and legislative branches and illustrate how Argentina’s post World War II political and economic history elucidates our framework.

Keywords: Populism, TFP, economic development, private investment, innovation, Argentina

Suggested Citation

Magistro, Beatrice and Menaldo, Victor A., How Populism Harms Prosperity: Unified Populist Rule Reduces Investment, Innovation, and Productivity (August 25, 2022). Available at SSRN: https://ssrn.com/abstract=4200635 or http://dx.doi.org/10.2139/ssrn.4200635

Beatrice Magistro

University of Toronto ( email )

Toronto, Ontario M5S 3G8
Canada

Victor A. Menaldo (Contact Author)

University of Washington - Department of Political Science ( email )

101 Gowen Hall
Box 353530
Seattle, WA 98195
United States

UW Political Economy Forum ( email )

Seattle, WA 98195
United States

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