The Impact of External Pressure on Voting Outcomes in Transition Economies

Abstract

The public choice model developed in this paper explains how increased external intervention and monitoring may lead to lessening of the intrinsic motivation within transitional economies to pursue reforms as prescribed by the Washington Consensus. This may lead to the slowdown of economic and institutional reforms sometimes followed by a lack of support for reform in popular votes at election time. Conditions under which this situation may occur are identified. The model is empirically tested for the period 1990-2001, encompassing more than fifteen East European countries. Results of the analysis suggest that the impact of external pressure expressed as the amount of U.S. loans on voting outcomes in transitional countries is significant. Consistent with prior expectations, a new class of private landowners and farmers support further privatization and market orientation and consequently vote for Western-oriented parties. Likewise, a new system of market based economies brings along more volatility and uncertainty creating an income based population segmentation and inequality. Higher fertility rates which are typically associated with lower income levels lead to fewer votes going to reformist, pro-market parties. Hence, foreign investors will clearly have to target the more affluent segment of populations in transitional economies for more support.