you reap what you sow - princeton university...you reap what you sow agricultural bias and the...

Motivation Theory Results Work in progress

You Reap What You SowAgricultural bias and the electoral politics of democratic

sovereign default

Cameron Ballard-Rosa

Department of Political Science,University of North Carolina, Chapel Hill

International Political Economy Society, 2014

You Reap What You Sow Department of Political Science, University of North Carolina, Chapel Hill


Previous work on debt default.I Macroeconomic theories: Eaton & Gersovitz (1981), Bulow &

Rogoff (1989), Reinhart, Rogoff & Savastano (2003), Bandiera,Cuaresma & Vincelette (2010)

I Reputational theories: Tomz (2007)

I Institutional theories: Kraay & Nehru (2006), VanRijckeghem & Weder (2009), Saiegh (2009), Kohlscheen(2010)

I Coalitional/geographic theories: Ballard-Rosa (2014)I “Given that the choice between default and repayment is

partly political, how do the preferences of voters andinterests groups matter, and what role do politicalinstitutions play in determining whether sovereigns repay?We suspect these questions will become major foci in theliterature." Tomz & Wright (2013)







I Coalitional/geographic theories: Ballard-Rosa (2014)

I “Given that the choice between default and repayment ispartly political, how do the preferences of voters andinterests groups matter, and what role do politicalinstitutions play in determining whether sovereigns repay?We suspect these questions will become major foci in theliterature." Tomz & Wright (2013)







I Coalitional/geographic theories: Ballard-Rosa (2014)I “Given that the choice between default and repayment is

partly political, how do the preferences of voters andinterests groups matter, and what role do politicalinstitutions play in determining whether sovereigns repay?We suspect these questions will become major foci in theliterature." Tomz & Wright (2013)



My argument

During fiscal crises, politicians are unwilling to make changesthat affect groups that keep them in power.

In democracies:I Politically powerful groups are those with disproportionate

electoral influence.I Rural electoral advantages –> rural bias –> agricultural

price supports.I Agricultural support policies can become a large fiscal

burden on the state.I Democratic rulers will be unwilling to adjust these policies

if the alternative is heavy electoral losses.



My argument

During fiscal crises, politicians are unwilling to make changesthat affect groups that keep them in power.In democracies:

I Politically powerful groups are those with disproportionateelectoral influence.

I Rural electoral advantages –> rural bias –> agriculturalprice supports.

I Agricultural support policies can become a large fiscalburden on the state.

I Democratic rulers will be unwilling to adjust these policiesif the alternative is heavy electoral losses.



Rural-biased default hypotheses

I Must exist rural electoral advantages.

I H1: More rural democracies will be more likely to defaulton their sovereign debt.

I Farm subsidy program must be costly – this dependsgreatly on food trade status.

I H2: This effect will be most pronounced in food exporters.




I Must exist rural electoral advantages.I H1: More rural democracies will be more likely to default

on their sovereign debt.

I Farm subsidy program must be costly – this dependsgreatly on food trade status.






on their sovereign debt.I Farm subsidy program must be costly – this depends

greatly on food trade status.






on their sovereign debt.I Farm subsidy program must be costly – this depends

greatly on food trade status.I H2: This effect will be most pronounced in food exporters.



Fiscal burden of farm support



Data & EstimationI DV: default year (from R&R 2009) in democracies only.

I Main explanatory variable: rural population (as percent oftotal population)

I Economic controls (GDP per capita, ∆ GDP, debt/GDP,debt2, inflation, trade, foreign reserves)

I Demographic explanations (logged population, populationdensity )

I Political controls (election, margin of victory, governmentfractionalization)

I Estimating model:defaultit = β1ruralit−1 + γXit−1 + ηi + θt + εit

I All models include country and year fixed effects, andreport multiple imputation estimates of coefficients withstandard errors clustered at the country level.



Data & EstimationI DV: default year (from R&R 2009) in democracies only.I Main explanatory variable: rural population (as percent of

total population)

I Economic controls (GDP per capita, ∆ GDP, debt/GDP,debt2, inflation, trade, foreign reserves)








total population)I Economic controls (GDP per capita, ∆ GDP, debt/GDP,

debt2, inflation, trade, foreign reserves)









debt2, inflation, trade, foreign reserves)I Demographic explanations (logged population, population

density )









density )I Political controls (election, margin of victory, government

fractionalization)









fractionalization)I Estimating model:

defaultit = β1ruralit−1 + γXit−1 + ηi + θt + εit








fractionalization)I Estimating model:

defaultit = β1ruralit−1 + γXit−1 + ηi + θt + εitI All models include country and year fixed effects, and

report multiple imputation estimates of coefficients withstandard errors clustered at the country level.



Baseline specifications

(1) (2) (3) (4)VARIABLES Bivar. Econ. Demog. Polit.

Rural pop. (% total pop.) 0.015*** 0.013*** 0.015*** 0.015***(0.005) (0.005) (0.005) (0.005)

Economic controls No Yes Yes YesDemographic controls No No Yes YesPolitical controls No No No YesObservations 1,621 1,621 1,621 1,621Countries 55 55 55 55

*** p<0.01, ** p<0.05, * p<0.1



Food trade and democratic default

(1) (2) (3) (4) (5) (6)VARIABLES Bivar.X BaselineX Polit.X Bivar.M BaselineM Polit.M

Rural pop. 0.013*** 0.015*** 0.017*** -.0006163 0.005 0.005(0.005) (0.006) (0.007) (0.002) (0.003) (0.004)

Economic controls No Yes Yes No Yes YesPolitical controls No No Yes No No YesObservations 1,055 1,055 1,055 566 566 566# countries 41 41 41 34 34 34

*** p<0.01, ** p<0.05, * p<0.1



Also in autocracies?

(1) (2)VARIABLES Democ. Autoc.

Rural pop. (% total pop.) 0.015*** -0.022***(0.005) (0.006)

Economic controls Yes YesDemographic controls Yes YesObservations 1,621 937Countries 55 42

*** p<0.01, ** p<0.05, * p<0.1



Relative rate of assistance to agriculture



RRA and default in democ.



Next Steps

I Mechanism validation

I Historical evidenceI Macro-level correlatesI Meso-level transmissionI Micro-level interests



Next Steps

I Mechanism validationI Historical evidence

I Macro-level correlatesI Meso-level transmissionI Micro-level interests



Next Steps

I Mechanism validationI Historical evidenceI Macro-level correlates

I Meso-level transmissionI Micro-level interests



Next Steps

I Mechanism validationI Historical evidenceI Macro-level correlatesI Meso-level transmission

I Micro-level interests



Next Steps

I Mechanism validationI Historical evidenceI Macro-level correlatesI Meso-level transmissionI Micro-level interests



Thank you!


The Model Other output tables Multiple Imputation diagnostics

Democratic cross-tabs



Rural bias and electoral survivalWhy should we care about rural electoral interests?

I Much formal work on electoral mobilization advantageshas specifically highlighted agricultural producers as socialgroups with disproportional electoral influence (Dixit &Londgregan (1996), Persson & Tabellini (2000)).

I Recent empirical work has demonstrated a number offorms of rural—especially agricultural—biases indemocratic policymaking (Varshney (1998), Stasavage(2005), Rodden (2010), Bates & Block (2011), Harding(2012), Golden & Min (2013)).

I Work on politics of trade reform has suggested thatagricultural price subsidies are one of the most intractableareas of trade liberalization (Davis (2003)).



Countries in external sovereign debt default

Source: Reinhart & Rogoff (2009)



Actors I: CitizensI 2 citizen groups (U and R), and 2 political parties (I and C).I Rural citizens form proportion (1− α) of total population;

each produces b̄ units of food.I Urban citizens form proportion α of total population; each

produces x̄ units of (non-food) good.I Consumption utility for citizen i of type j :

vij(x ,b) = x + ln(b)

I Citizens also have individual preferences for I winningoffice σij ∼ U[− 1

2ψj, 1

2ψj] for j ∈ {R,U} as well as societal

“valence" shocks ε ∼ U[− 12η ,

12η ].

I Full utility for citizen i of type j :uij(x ,b) = vij(x ,b) + 1{G = I}(σij + ε)



Actors II: Parties

I Utility for political party k from winning office:uk (δ) = χ+ (1− δ)ρl

I Government can increase price of b by providingagricultural producer subsidy φ.

I Government budget constraint: γ ≥ C(φ) + (1− δ)dI Probability that C wins the election: νC(φC |φI) =

ηψ (αψU ln( π+φI

π+φC) + (1− α)ψR[(φC − φI)b̄ + ln( π+φI

π+φC]) + 1

2



Timing of the Game

1. Nature draws a world price of food π ∼ F (.).2. The Incumbent and Challenger simultaneously choose

whether to default or not, and select a feasible producerprice subsidy (δk ∈ {0,1}, φk ∈ [φ, φ̄] for k ∈ {I,C}).

3. Nature draws values for ε and for all σij .4. Citizens vote either for the Incumbent or the Challenger

based on uij(φI) versus uij(φC).5. The winning party assumes (or retains) control of the

executive, and payoffs accrue.



Level of rurality

(1) (2) (3) (4) (5) (6)VARIABLES Bivar.R BaselineR Polit.R Bivar.U BaselineU Polit.U

Rural pop. (%) 0.014*** 0.014** 0.026*** 0.008 0.006 0.009(0.005) (0.006) (0.008) (0.008) (0.008) (0.01)

Baseline controls No Yes Yes No Yes YesPolitical controls No No Yes No No YesObservations 733 733 733 888 888 888# countries 31 31 31 34 34 34

*** p<0.01, ** p<0.05, * p<0.1



Subsamples and placebos

(1) (2) (3) (4) (5) (6)VARIABLES No OECD PR Major. Currency Inflation Banking

Rural pop. (%) 0.026*** 0.016** 0.041*** -.0001809 -.0005694 .0002611Full controls Yes Yes Yes Yes Yes YesObservations 775 1,032 344 1,621 1,621 1,621# countries 33 44 16 55 55 55

*** p<0.01, ** p<0.05, * p<0.1



Overimputation



Overdispersion


you reap what you sow - princeton university...you reap what you sow agricultural bias and the...

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