{"title":"Do Exchange Rates Influence Voting? Evidence from Elections and Survey Experiments in Democracies","authors":"Dennis P. Quinn, Thomas Sattler, Stephen Weymouth","doi":"10.1017/s002081832300022x","DOIUrl":null,"url":null,"abstract":"<p>Intense debate surrounds the effects of trade on voting, yet less attention has been paid to how <span>fluctuations in the real exchange rate</span> may influence elections. A moderately overvalued currency enhances consumers’ purchasing power, yet extreme overvaluation threatens exports and economic growth. We therefore expect exchange rates to have a conditional effect on elections: when a currency is undervalued, voters will punish incumbents for further depreciations; yet when it is highly overvalued, they may reward incumbents for depreciation. We empirically explore our argument in three steps. First, we examine up to 412 elections in up to 59 democratic countries and show that voters generally punish depreciation in the real exchange rate when the currency is undervalued. We also find that at extremely high levels of currency overvaluation, voters sometimes reward incumbents for depreciation. A currency peg, especially in the eurozone, appears to insulate incumbents from these effects. In a second step, we explore the microfoundations of the election results through survey experiments in three advanced industrialized and two emerging market nations with different monetary and exchange rate policies and institutions. Respondents in countries with undervalued to mildly overvalued currencies disapprove of currency depreciations, whereas those facing a very highly overvalued currency favor depreciation. Third, we examine the mechanism of political competition in exchange rate policymaking and demonstrate that sustained undervaluation is rare in countries with strong political competition. Democratic governments have electoral incentives to avoid using undervalued currencies as a means of shielding workers from import competition.</p>","PeriodicalId":48388,"journal":{"name":"International Organization","volume":"32 1","pages":""},"PeriodicalIF":8.2000,"publicationDate":"2023-12-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"International Organization","FirstCategoryId":"90","ListUrlMain":"https://doi.org/10.1017/s002081832300022x","RegionNum":1,"RegionCategory":"社会学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"INTERNATIONAL RELATIONS","Score":null,"Total":0}
引用次数: 0
Abstract
Intense debate surrounds the effects of trade on voting, yet less attention has been paid to how fluctuations in the real exchange rate may influence elections. A moderately overvalued currency enhances consumers’ purchasing power, yet extreme overvaluation threatens exports and economic growth. We therefore expect exchange rates to have a conditional effect on elections: when a currency is undervalued, voters will punish incumbents for further depreciations; yet when it is highly overvalued, they may reward incumbents for depreciation. We empirically explore our argument in three steps. First, we examine up to 412 elections in up to 59 democratic countries and show that voters generally punish depreciation in the real exchange rate when the currency is undervalued. We also find that at extremely high levels of currency overvaluation, voters sometimes reward incumbents for depreciation. A currency peg, especially in the eurozone, appears to insulate incumbents from these effects. In a second step, we explore the microfoundations of the election results through survey experiments in three advanced industrialized and two emerging market nations with different monetary and exchange rate policies and institutions. Respondents in countries with undervalued to mildly overvalued currencies disapprove of currency depreciations, whereas those facing a very highly overvalued currency favor depreciation. Third, we examine the mechanism of political competition in exchange rate policymaking and demonstrate that sustained undervaluation is rare in countries with strong political competition. Democratic governments have electoral incentives to avoid using undervalued currencies as a means of shielding workers from import competition.
期刊介绍:
International Organization (IO) is a prominent peer-reviewed journal that comprehensively covers the field of international affairs. Its subject areas encompass foreign policies, international relations, political economy, security policies, environmental disputes, regional integration, alliance patterns, conflict resolution, economic development, and international capital movements. Continuously ranked among the top journals in the field, IO does not publish book reviews but instead features high-quality review essays that survey new developments, synthesize important ideas, and address key issues for future scholarship.