Avelino, Brown and Hunter: The Effects of Capital Mobility, Trade Openness, adn Democracy on Social Spending in Latin America

Avelino, G, DS Brown, and W Hunter. 2005. The Effects of Capital Mobility, Trade Openness, and Democracy on Social Spending in Latin America, 1980-1999. American Journal of Political Science 49, no. 3: 625-641.

"Empirical studies measuring the impact of globalization on social spending have appeared recently in leading journals. This study seeks to improve upon previous work by (1) employing a more sophisticated and comprehensive measure of financial openness; (2) using a more accurate measure of trade openness based on purchasing power parities; and (3) relying on social spending data that are more complete than those used by previous studies on Latin America. Our estimates suggest that several empirical patterns reported in previous work deserve a second look. We find that trade openness has a positive association with education and social security expenditures, that financial openness does not constrain government outlays for social programs, and that democracy has a strong positive association with social spending, particularly on items that bolster human capital formation" (625; abstract).

"Several empirical patterns emerge from our analysis. First, different measures of trade openness produce radically different results: previous empirical results based on exchange rate conversions are reversed when using a trade measure based on purchasing power parities (PPPs). Second, democracy has a strong and positive correlation with social spending. Third, financial openness does not constrain government spending on social programs. Finally, trade openness has a strong positive impact on the resources devoted to educational and social security while democracy's impact on spending results from increased expenditures for education" (625-6).

The DV they use is a combination of the % of population over 65, unemployment, the level of development, growth, urbanization, democracy, financial openness, trade openness, inflation all over gdp.

Key findings: "(1) democratic regimes spend more on social programs than do their authoritarian counterparts; (2) trade, as measured by purchasing power parities, tends to enhance rather than diminish social spending; and (3) financial openness has little systematic bearing on social spending"

"Trade openness (using PPPs) has a positive (though not always statically significant) impact on aggregate spending, and a strong positive and significant association with spending on social security and education" (637).