Partisan Convergence in Emerging Economies: What Can We Learn from Stock Markets?

Abstract

Globalization theorists have long argued that the convergence of left-wing and right-wing governments' agendas has made alternation of power irrelevant from the economic perspective, particularly in emerging economies heavily dependent on foreign savings. So far, however, the difficulties involved in quantifying integration and the lack of reliable data has made empirical work on these regions mostly inconclusive. In this article, I argue that stock market responses to national elections provide a simple and rather effective measure of partisan convergence on economic outcomes, suitable to testing this claim. Results challenge convergence theories, pointing to a scenario of partial divergence, whereby markets respond to elections along partisan lines but their capacity to anticipate a government’s agenda during the campaign is limited, even when electoral results are predictable. Compared to developed democracies, I find that the magnitude of market responses to elections is still significantly larger in the emerging markets.