Fight or Flight? Democratic Consolidation and Capital Flight in Latin America

Typically, as mass mobilization strengthens, Leftist parties embrace the aims of popular movements whose electoral support subsequently increases to levels that allow them to form governments committed to redistribution. Under these conditions, as mobilization and support for the Left strengthened, asset holders’ perceptions of risk increase significantly, leading to capital flight. Using a mixed methods research design combining quantitative analysis with qualitative case studies I present empirical evidence to support my argument.

For the quantitative analysis, regression analysis was applied to a cross-sectional time series dataset for 18 democracies. My results show that when Leftist parties actually form governments - thereby sealing the process of democratic inclusion and triggering more capital flight - the magnitude of capital flight is often mitigated a) if a Leftist party forming a government had been established for some time, in which case it typically moderated its redistributive policies; and b) by the continued electoral strength of pro-capital parties able to defend the interests of asset holders and effectively oppose the Leftist government.

I reinforced these findings with two case studies: one, a within-case longitudinal study of the impact of class mobilization on capital flight in El Salvador from 1990 to 2009 when the Left finally won power, and the other a comparative study of two Leftist governments in power, in El Salvador from 2009 onwards and Bolivia after 2006.