The Politics of Economic Crisis in Latin America

Researchers widely recognize that economic crises have important political consequences, yet there is little systematic research on the political factors that make nations more or less susceptible to economic crisis. Scholars have long debated the economic consequences of party systems, executive powers, and societal interest groups, but their relationships to crisis proclivity are poorly understood. We assess the political correlates of economic crisis using a cross-sectional time-series analysis of 17 Latin American countries over nearly three decades. Crises are measured along two dimensions—depth and duration—and disaggregated into three types: inflationary, GDP, and fiscal crises. Statistical results suggest that political institutions have a modest, and often unexpected, correlation with crises. More important than institutional attributes are social organization and the nature of party-society linkages, particularly the existence of a densely-organized trade union movement and/or a powerful leftist party. Strong unions and powerful parties of the left are associated with more severe economic crises, though there is some evidence that the combination of left-labor strength can alleviate inflationary crises. The results demonstrate the need to disaggregate the concept of economic crisis and incorporate the societal dimension when studying the political economy of crisis and reform.