The Role of External Economic Incentives in times of Political Transitions and Consolidations

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Development has become a buzzword in the field of political science and policy- making. This paper tries to answer why despite crucial political and economic similarities between European countries – Spain & Portugal – and South American countries – Argentina & Peru, South Americans constantly underperformed in terms of economic development in the last quarter of the 20th century? In the mid-70s, all of the above-mentioned countries where authoritarian dictatorships characterized with poor economic performance. Important economic indicators, such as GDP/capita, economic growth and inequalities, unemployment and etc., were roughly similar in all these countries. In the late 70s and early 80s these countries experienced democratic transitions, and by the end of the twentieth century they had been democracies for at least a decade. Iberian and South American counties picked in this study started out with similar economic indicators, had contemporaneously experienced democratic transition, yet, at the close of the 20th century they ended up with vastly disparate economic indicators. As this study tried to demonstrate the difference in economic growth stemmed from the rational vote-maximizing behavior of the governments. Governments would not engage in painful reforms not to antagonize their electorate. As a consequence no structural economic reforms would be implemented, until the country finds itself plunged in the economic precipice. This study also suggested that the only way out from the rationality induced logic of responsibility is economic incentives provided by foreign actors. Governments can justify their harsh economic policies to their electorate with future economic gains from them.This study explored how external economic incentives can stimulate progressive economic reforms in times of democratic transitions. By understanding why South American states failed where Iberian ones succeeded, we can learn more about important intervening variables, and offer alternative answers to questions of political transitions and their impact on economic growth. Moreover, this research might have some practical value for policy-makers facing transition from authoritarian to democratic market-oriented states.
Latin America, Political transition, Economic incentives