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Institutional shocks and economic outcomes : Allende's election, Pinochet's coup and the Santiago stock market

Author

Listed:
  • Daniele Girardi

    (University of Massachusetts Amherst)

  • Samuel Bowles

    (Santa Fe Institute)

Abstract

To study the effect of political and institutional changes on the economy, we look at share prices in the Santiago exchange during the tumultuous political events that characterized Chile in the early 1970s. We use a transparent empirical strategy, deploying previously unused daily data and exploiting two largely unexpected shocks which involved substantial variation in policies and institutions, providing a rare natural experiment. Allende's election and subsequent socialist experiment decreased share values, while the military coup and dictatorship that replaced him boosted them, in both cases by magnitudes unprecedented in the literature.

Suggested Citation

  • Daniele Girardi & Samuel Bowles, 2017. "Institutional shocks and economic outcomes : Allende's election, Pinochet's coup and the Santiago stock market," UMASS Amherst Economics Working Papers 2017-19, University of Massachusetts Amherst, Department of Economics.
    • Handle: RePEc:ums:papers:2017-19
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    Cited by:

    1. Juan Pablo Micozzi & Patricio Navia & Pablo Pinto & Sebastian Saiegh, 2024. "The Real-Time Impact of Political Risk on Market Valuations: Evidence from Peru," JRFM, MDPI, vol. 17(7), pages 1-15, July.
    2. Aldunate, Felipe & González, Felipe & Prem, Mounu & Urzúa, Francisco, 2020. "Privatization and business groups: Evidence from the Chicago Boys in Chile," Explorations in Economic History, Elsevier, vol. 78(C).
    3. Daniele Girardi, 2018. "Political shocks and financial markets : regression-discontinuity evidence from national elections," UMASS Amherst Economics Working Papers 2018-08, University of Massachusetts Amherst, Department of Economics.
    4. Felipe González & Mounu Prem, 2020. "Losing your dictator: firms during political transition," Journal of Economic Growth, Springer, vol. 25(2), pages 227-257, June.
    5. Giacomo Gabbuti, 2018. "Labour Shares and Income Inequality: Insights from Italian Economic History, 1895-2015," HHB Working Papers Series 13, The Historical Household Budgets Project.
    6. Liu, Yixin & Liu, Yu & Wei, Zuobao, 2022. "Property rights protection, financial constraint, and capital structure choices: Evidence from a Chinese natural experiment," Journal of Corporate Finance, Elsevier, vol. 73(C).
    7. Anarkulova, Aizhan & Cederburg, Scott & O’Doherty, Michael S., 2022. "Stocks for the long run? Evidence from a broad sample of developed markets," Journal of Financial Economics, Elsevier, vol. 143(1), pages 409-433.
    8. Stefano Di Bucchianico, 2019. "The Impact of Financialization on the Rate of Profit: A Discussion," Centro Sraffa Working Papers CSWP36, Centro di Ricerche e Documentazione 'Piero Sraffa'.

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    Keywords

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    JEL classification:

    • P00 - Political Economy and Comparative Economic Systems - - General - - - General
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • N2 - Economic History - - Financial Markets and Institutions

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