American Political Science Review (2018)112.4,758-774 doi:10.1017/S0003055418000485 American Political Science Association 2018 When the Money Stops:Fluctuations in Financial Remittances and Incumbent Approval in Central Eastern Europe,the Caucasus and Central Asia KATERINA TERTYTCHNAYA University of Oxford CATHERINE E.DE VRIES Vrije Universiteit Amsterdam HECTOR SOLAZ Vrije Universiteit Amsterdam DAVID DOYLE University of Oxford Mluctuations in the volume and the value of financial remittances received from abroad affect the livelihood of households in developing economies across the world.Yet,political scientists have little to say about how changes in remittances,as opposed to the receipt of remittance payments alone,affect recipients'political attitudes.Relying on a unique four-wave panel study of Kyrgyz citizens between 2010-2013 and a cross-sectional sample of 28 countries in Central Eastern Europe,the Cauca- sus and Central Asia,we show that when people experience a decrease (increase)in remittances,they become less (more)satisfied about their household economic situation and misattribute responsibility to the incumbent at home.Our findings advance the literature on the political consequences of remit- tance payments and suggest that far from exclusively being an international risk-sharing mechanism for developing countries,remittances can also drive fluctuations in incumbent approval and compromise rudimentary accountability mechanisms in the developing world. INTRODUCTION economists have long been interested in the economic impact of these income transfers.Although a con- or developing world economies,financial remit- tentious debate exists about the relationship between tances,in the form of private-to-private income remittances and economic growth(e.g.Page and Plaza transfers sent by a family member abroad to a 2006),many economists have suggested that remit- relative in their country of origin,are now a major tances act as an important international risk-sharing source of capital.In 2015 alone,worldwide remittances mechanism(e.g.Yang and Choi 2007).This perspective exceeded 601 billion US Dollars and of that amount, 441 billion went to developing countries(Ratha,Eigen- however,is largely based on the assumption that remit- tance payments either remain stable over time,or that Zucchi,and Plaza 2016).This is a sum equivalent to they increase in response to negative shocks in migrant three times the size of all global aid flows.Development sending economies.But what happens if remittance flows suddenly change?How do fluctuations in remit- Katerina Tertytchnaya is a Junior Research Fellow,St Anne's col- tances influence the political attitudes of recipients? lege and Department of Politics and International Relations,Uni- In this study,we explore how fluctuations in remitted versity of Oxford.Manor Road.Oxford OX1 3UQ.United Kingdom income affect support for the incumbent in remittance- (katerina.tertytchnaya@politics.ox.ac.uk). Catherine E.De Vries is a Professor,Department of Politi- receiving countries.Building on a small number of cal Science Public Administration,Vrije Universiteit Amster- studies that have linked remittances to economic dam.De Boelelaan 1055.1081 HV Amsterdam.The Netherlands voting (Bravo 2012;Germano 2013;Ahmed 2017) (c.e.de.vries@vu.nl). and recent work on competence misattribution in Hector Solaz is a Lecturer,John Stuart Mill College,Vrije Uni- versiteit Amsterdam,De Boelelaan 1055,1081 HV Amsterdam,The developing countries (Campello and Zucco 2016), Netherlands(h.solazsantos@vu.nl). we contend that changes in remittances influence David Doyle is an Associate Professor,Department of Politics and economic assessments and incumbent approval in International Relations,University of Oxford,Manor Road,Oxford recipient countries.Specifically,we expect that when OX1 3UQ.United Kingdom (david.doyle@politics.ox.ac.uk). remittance inflows increase.economic evaluations Previous versions of this article were presented at research sem- inars at the Institute of Advanced Studies in Toulouse,the Lon- and incumbent approval will also increase,but when don School of Economics,Pompeu Fabra University and the Uni- these payments decline,recipients will punish incum- versity of California,Los Angeles as well as the Annual Meeting bents.Our argument echoes recent work in economic of the Midwest Political Science Association.The authors would voting that highlights the importance of pocketbook like to thank Jesse Acevedo,Faisal Ahmed,Ben Ansell,Laia Bal- cells,Michael Becher,Tilman Bruck,Elias Dinas,Abel Escriba- assessments for incumbent approval (e.g.Manacorda, Folch,Damir Esenaliev,Aina Gallego,Miriam Golden,Carlo Horz, Miguel,and Vigorito 2011;Pop-Eleches and Pop- Spyros Kosmidis,David Leblang.Lucas Leemann,Barry Maydom. Eleches 2012).By relying on their pocketbooks to Covadonga Meseguer,Lucas Novaes,Karine Van Der Straeten inform their evaluations of government performance Mariken van der Velden,Cesar Zucco as well as four anonymous however.remittance recipients may be rewarding or reviewers and the editor at the American Political Science Review for their constructive comments.Replication files are available at punishing incumbents at home for economic develop- the American Political Science Review Dataverse:https://doi.org/10. ments abroad,in remittance sending economies,that 7910/DVN/MO3KOQ. are largely outside of the incumbent's control. Received:July 13,2017:revised:April 16,2018:accepted:July 5.2018. We are able to test these expectations by leveraging First published online:September 5,2018. a unique four-wave panel study of Kyrgyz citizens 758
American Political Science Review (2018) 112, 4, 758–774 doi:10.1017/S0003055418000485 © American Political Science Association 2018 When the Money Stops: Fluctuations in Financial Remittances and Incumbent Approval in Central Eastern Europe, the Caucasus and Central Asia KATERINA TERTYTCHNAYA University of Oxford CATHERINE E. DE VRIES Vrije Universiteit Amsterdam HECTOR SOLAZ Vrije Universiteit Amsterdam DAVID DOYLE University of Oxford Fluctuations in the volume and the value of financial remittances received from abroad affect the livelihood of households in developing economies across the world. Yet, political scientists have little to say about how changes in remittances, as opposed to the receipt of remittance payments alone, affect recipients’ political attitudes. Relying on a unique four-wave panel study of Kyrgyz citizens between 2010–2013 and a cross-sectional sample of 28 countries in Central Eastern Europe, the Caucasus and Central Asia, we show that when people experience a decrease (increase) in remittances, they become less (more) satisfied about their household economic situation and misattribute responsibility to the incumbent at home. Our findings advance the literature on the political consequences of remittance payments and suggest that far from exclusively being an international risk-sharing mechanism for developing countries, remittances can also drive fluctuations in incumbent approval and compromise rudimentary accountability mechanisms in the developing world. INTRODUCTION For developing world economies, financial remittances, in the form of private-to-private income transfers sent by a family member abroad to a relative in their country of origin, are now a major source of capital. In 2015 alone, worldwide remittances exceeded 601 billion US Dollars and of that amount, 441 billion went to developing countries (Ratha,EigenZucchi, and Plaza 2016). This is a sum equivalent to three times the size of all global aid flows.Development Katerina Tertytchnaya is a Junior Research Fellow, St Anne’s college and Department of Politics and International Relations, University of Oxford,Manor Road, Oxford OX1 3UQ, United Kingdom (katerina.tertytchnaya@politics.ox.ac.uk). Catherine E. De Vries is a Professor, Department of Political Science & Public Administration, Vrije Universiteit Amsterdam, De Boelelaan 1055, 1081 HV Amsterdam, The Netherlands (c.e.de.vries@vu.nl). Hector Solaz is a Lecturer, John Stuart Mill College, Vrije Universiteit Amsterdam, De Boelelaan 1055, 1081 HV Amsterdam, The Netherlands (h.solazsantos@vu.nl). David Doyle is an Associate Professor,Department of Politics and International Relations, University of Oxford, Manor Road, Oxford OX1 3UQ, United Kingdom (david.doyle@politics.ox.ac.uk). Previous versions of this article were presented at research seminars at the Institute of Advanced Studies in Toulouse, the London School of Economics, Pompeu Fabra University and the University of California, Los Angeles as well as the Annual Meeting of the Midwest Political Science Association. The authors would like to thank Jesse Acevedo, Faisal Ahmed, Ben Ansell, Laia Balcells, Michael Becher, Tilman Brück, Elias Dinas, Abel Escribà- Folch, Damir Esenaliev, Aina Gallego, Miriam Golden, Carlo Horz, Spyros Kosmidis, David Leblang, Lucas Leemann, Barry Maydom, Covadonga Meseguer, Lucas Novaes, Karine Van Der Straeten, Mariken van der Velden, Cesar Zucco as well as four anonymous reviewers and the editor at the American Political Science Review for their constructive comments. Replication files are available at the American Political Science Review Dataverse: https://doi.org/10. 7910/DVN/MO3KOQ. Received: July 13, 2017; revised: April 16, 2018; accepted: July 5, 2018. First published online: September 5, 2018. economists have long been interested in the economic impact of these income transfers. Although a contentious debate exists about the relationship between remittances and economic growth (e.g. Page and Plaza 2006), many economists have suggested that remittances act as an important international risk-sharing mechanism (e.g. Yang and Choi 2007). This perspective however, is largely based on the assumption that remittance payments either remain stable over time, or that they increase in response to negative shocks in migrant sending economies. But what happens if remittance flows suddenly change? How do fluctuations in remittances influence the political attitudes of recipients? In this study, we explore how fluctuations in remitted income affect support for the incumbent in remittancereceiving countries. Building on a small number of studies that have linked remittances to economic voting (Bravo 2012; Germano 2013; Ahmed 2017) and recent work on competence misattribution in developing countries (Campello and Zucco 2016), we contend that changes in remittances influence economic assessments and incumbent approval in recipient countries. Specifically, we expect that when remittance inflows increase, economic evaluations and incumbent approval will also increase, but when these payments decline, recipients will punish incumbents. Our argument echoes recent work in economic voting that highlights the importance of pocketbook assessments for incumbent approval (e.g. Manacorda, Miguel, and Vigorito 2011; Pop-Eleches and PopEleches 2012). By relying on their pocketbooks to inform their evaluations of government performance however, remittance recipients may be rewarding or punishing incumbents at home for economic developments abroad, in remittance sending economies, that are largely outside of the incumbent’s control. We are able to test these expectations by leveraging a unique four-wave panel study of Kyrgyz citizens 758 Downloaded from https://www.cambridge.org/core. Shanghai JiaoTong University, on 26 Oct 2018 at 03:53:04, subject to the Cambridge Core terms of use, available at https://www.cambridge.org/core/terms. https://doi.org/10.1017/S0003055418000485
When the Money Stops between 2010-2013 that allows us to carefully identify especially in developing economies characterized how fluctuations in remittances influence economic by high volatility and paucity of information.Ac- assessments and incumbent approval in Kyrgyzstan countability mechanisms however,which are often (Life in Kyrgyzstan,LiK).An additional instrumental rudimentary in these contexts.could erode even variable estimation allows us to address concerns further as a result;it constitutes a form of competence about endogeneity.We bolster the external validity of misattribution (see Campello and Zucco 2017).For our findings by supplementing our analyses with cross- electoral accountability to function properly,voters national data from 28 countries in Central Eastern need to reward,or punish,incumbents for outcomes Europe,the Caucasus and Central Asia covered in for which they are primarily responsible(Kayser and the 2010 European Bank for Reconstruction and Peress 2012).In many ways,investigating whether op//s Development (ERBD)Life in Transition surveys voters update their incumbent evaluations in response (LiTS).The results of our analyses strongly support to fluctuations in remittances provides an excellent test our main theoretical contention:they establish a robust of the misattribution mechanism.Existing research link between fluctuations in remittances,economic argues that remittances are largely outside of the con- assessments and incumbent approval. trol of governments in migrant home countries (Bravo Our findings have a number of important implica- 2012)and when incumbent popularity is shaped by tions.Firstly,while a large literature on the economic remittance inflows from abroad,this may be a political ramifications of remittances exists,there is very little manifestation of economic dependency (e.g.Wibbels work on the political dynamics of these capital inflows. 2006). Having said that,some recent work has begun to We proceed as follows.The next section discusses explore the political effects of remittances at the existing research on the political consequences of national level (Abdih et al.2012:Tyburski 2012: remittances,before presenting the main argument Aparicio and Meseguer 2012;Pfutze 2014;O'Mahony of our work.We then introduce our case selection 2013:Ahmed 2012:Escriba-Folch.Meseguer.and data and analysis of the LiK panel data,and LiTS Wright 2015;Chaudhry 1997;Singer 2012;Doyle cross-sectional surveys.The final section concludes. 2015;Leblang 2017),but we still only have a small number of studies that explore the effect of financial & remittances on individual-level political attitudes and THE POLITICAL CONSEQUENCES OF behavior (Meseguer,Lavezzolo,and Aparicio 2016; REMITTANCES Germano 2013:Bravo 2012).While some of this work has connected remittances to economic voting (Bravo Development economists have long been concerned 2012:Germano 2013:Ahmed 2017).only the work of with the economic effects of remittances.Their work Acevedo(2016)has considered,although not explicitly highlights the role of remittances in reducing poverty tested,how fluctuations in remitted income might illiteracy and infant mortality (for an overview.see affect the political attitudes of recipients with regard Fajnzylber and Lopez 2008).There is also a well- to demand for welfare.No work in political science has documented debate about the effect of remittances on yet examined how fluctuations in remittance inflows economic growth in developing economies (e.g.Page might affect recipients'political attitudes in general, and Plaza 2006).Very little work however,has explored and support for incumbents in particular. the political effects of remittances.We have a vast liter- This article is also relevant for work on economic ature on the political consequences of immigration in voting (e.g.Kramer 1971;Fiorina 1981)and compe- migrant receiving states(e.g.Cornelius and Rosenbulm tence misattribution in developed and developing 2005),but know very little about the political effects countries (e.g.Duch and Stevenson 2008;Healy,Kuo, that remittances might exert on the countries or indi- and Malhotra 2014).While some evidence suggests viduals that receive them. that voters in Europe can disentangle competence Nonetheless.in recent years,a number of stud- from exogenous shocks,i.e.events largely outside of ies have begun to explore the effect of remittances the control of incumbents(Duch and Stevenson 2008), and migration on the politics of remittance receiving, recent work has challenged this assumption for low- and migrant sending,states.This work has demon- information,developing country contexts (Campello strated that remittances can affect exchange rate policy and Zucco 2016).Traditional accounts of economic (Singer 2010),dual citizenship requirements (Leblang voting conclude that rational voters should only 2017),and public accountability (Abdih et al.2012; 四 sanction the incumbent when economic performance Tyburski 2012;Aparicio and Meseguer 2012),to- is the product of government competence (e.g.Duch gether with the linkage strategies adopted by politi- and Stevenson 2008).Yet in developing countries, cal parties,notably clientelism(Pfutze 2014;O'Mahony where party systems are often weak and party labels 2013).Evidence suggests that remittances can prolong have little meaning (Lupu 2016),economic outcomes (Ahmed 2012)and hinder (Escriba-Folch,Meseguer, and assessments,even if largely driven by exogenous and Wright 2015)the survival of autocratic regimes factors,may be the only signal or source of information and they can also shape the level,and type,of gov- about incumbent competence that voters have and ernment expenditures(Chaudhry 1997;Ahmed 2012; may serve as the basis for a calculated economic vote Singer 2012;Doyle 2015).The majority of this work is (Campello and Zucco 2017). at the macro-level Rewarding or punishing incumbents for develop- There are only a few exceptions to this general trend. ments abroad may be a rational strategy for voters, A number of studies have explored the effect of social 759
When the Money Stops between 2010–2013 that allows us to carefully identify how fluctuations in remittances influence economic assessments and incumbent approval in Kyrgyzstan (Life in Kyrgyzstan, LiK). An additional instrumental variable estimation allows us to address concerns about endogeneity. We bolster the external validity of our findings by supplementing our analyses with crossnational data from 28 countries in Central Eastern Europe, the Caucasus and Central Asia covered in the 2010 European Bank for Reconstruction and Development (ERBD) Life in Transition surveys (LiTS). The results of our analyses strongly support our main theoretical contention; they establish a robust link between fluctuations in remittances, economic assessments and incumbent approval. Our findings have a number of important implications. Firstly, while a large literature on the economic ramifications of remittances exists, there is very little work on the political dynamics of these capital inflows. Having said that, some recent work has begun to explore the political effects of remittances at the national level (Abdih et al. 2012; Tyburski 2012; Aparicio and Meseguer 2012; Pfutze 2014; O’Mahony 2013; Ahmed 2012; Escribà-Folch, Meseguer, and Wright 2015; Chaudhry 1997; Singer 2012; Doyle 2015; Leblang 2017), but we still only have a small number of studies that explore the effect of financial remittances on individual-level political attitudes and behavior (Meseguer, Lavezzolo, and Aparicio 2016; Germano 2013; Bravo 2012). While some of this work has connected remittances to economic voting (Bravo 2012; Germano 2013; Ahmed 2017), only the work of Acevedo (2016) has considered, although not explicitly tested, how fluctuations in remitted income might affect the political attitudes of recipients with regard to demand for welfare. No work in political science has yet examined how fluctuations in remittance inflows might affect recipients’ political attitudes in general, and support for incumbents in particular. This article is also relevant for work on economic voting (e.g. Kramer 1971; Fiorina 1981) and competence misattribution in developed and developing countries (e.g. Duch and Stevenson 2008; Healy, Kuo, and Malhotra 2014). While some evidence suggests that voters in Europe can disentangle competence from exogenous shocks, i.e. events largely outside of the control of incumbents (Duch and Stevenson 2008), recent work has challenged this assumption for lowinformation, developing country contexts (Campello and Zucco 2016). Traditional accounts of economic voting conclude that rational voters should only sanction the incumbent when economic performance is the product of government competence (e.g. Duch and Stevenson 2008). Yet in developing countries, where party systems are often weak and party labels have little meaning (Lupu 2016), economic outcomes and assessments, even if largely driven by exogenous factors, may be the only signal or source of information about incumbent competence that voters have and may serve as the basis for a calculated economic vote (Campello and Zucco 2017). Rewarding or punishing incumbents for developments abroad may be a rational strategy for voters, especially in developing economies characterized by high volatility and paucity of information. Accountability mechanisms however, which are often rudimentary in these contexts, could erode even further as a result; it constitutes a form of competence misattribution (see Campello and Zucco 2017). For electoral accountability to function properly, voters need to reward, or punish, incumbents for outcomes for which they are primarily responsible (Kayser and Peress 2012). In many ways, investigating whether voters update their incumbent evaluations in response to fluctuations in remittances provides an excellent test of the misattribution mechanism. Existing research argues that remittances are largely outside of the control of governments in migrant home countries (Bravo 2012) and when incumbent popularity is shaped by remittance inflows from abroad, this may be a political manifestation of economic dependency (e.g. Wibbels 2006). We proceed as follows. The next section discusses existing research on the political consequences of remittances, before presenting the main argument of our work. We then introduce our case selection, data and analysis of the LiK panel data, and LiTS cross-sectional surveys. The final section concludes. THE POLITICAL CONSEQUENCES OF REMITTANCES Development economists have long been concerned with the economic effects of remittances. Their work highlights the role of remittances in reducing poverty, illiteracy and infant mortality (for an overview, see Fajnzylber and Lopez 2008). There is also a welldocumented debate about the effect of remittances on economic growth in developing economies (e.g. Page and Plaza 2006).Very little work however, has explored the political effects of remittances.We have a vast literature on the political consequences of immigration in migrant receiving states (e.g. Cornelius and Rosenbulm 2005), but know very little about the political effects that remittances might exert on the countries or individuals that receive them. Nonetheless, in recent years, a number of studies have begun to explore the effect of remittances and migration on the politics of remittance receiving, and migrant sending, states. This work has demonstrated that remittances can affect exchange rate policy (Singer 2010), dual citizenship requirements (Leblang 2017), and public accountability (Abdih et al. 2012; Tyburski 2012; Aparicio and Meseguer 2012), together with the linkage strategies adopted by political parties, notably clientelism (Pfutze 2014;O’Mahony 2013). Evidence suggests that remittances can prolong (Ahmed 2012) and hinder (Escribà-Folch, Meseguer, and Wright 2015) the survival of autocratic regimes and they can also shape the level, and type, of government expenditures (Chaudhry 1997; Ahmed 2012; Singer 2012; Doyle 2015). The majority of this work is at the macro-level. There are only a few exceptions to this general trend. A number of studies have explored the effect of social 759 Downloaded from https://www.cambridge.org/core. Shanghai JiaoTong University, on 26 Oct 2018 at 03:53:04, subject to the Cambridge Core terms of use, available at https://www.cambridge.org/core/terms. https://doi.org/10.1017/S0003055418000485
Katerina Tertytchnaya et al. remittances,that is,the norms and ideas that migrants voter evaluations of economic performance:when eco- observe in their host country and transmit to family nomic performance is deemed to be good,incum- members in their country of origin,on individual level bents are rewarded and when economic performance political behavior and preferences (e.g.Levitt 2001) is deemed bad,incumbents are punished or sanctioned This work suggests that social remittances can lead (e.g.Kramer 1971;Fiorina 1981).This economic vot- to higher rates of non-electoral political participation ing model has more sophisticated variants:most no- and more critical evaluations of democracy (Perez- tably,competence models,which argue that voters go Armendariaz and Crow 2010).higher rates of politica beyond a reward-punishment calculus and instead seek activity and political interest (Cordova and Hiskey to select the most competent candidate,based on ex- 2015)and support for a more enhanced role for the pectations developed with the available economic data state(Meseguer,Lavezzolo,and Aparicio 2016). they have observed (e.g.Stigler 1973;for an overview, Less work studies the effect of financial remittances see Duch and Stevenson 2008,12-16).For this rea- on the political behavior and attitudes of those that son,economic voting comes with significant normative receive them.Given the scale of these transfers,in implications.It suggests that even in low-information some contexts they can be as large as the national environments with weak party systems,voters can as- median income,and given that they are generally un- sign responsibility for economic outcomes to the ac- taxed and go directly into the hands of the individ- tions of incumbents,thereby establishing a chain of uals that receive them,this would seem to be an democratic accountability(Stokes 2001).In fact,across oversight,particularly as we now know how important new democracies,evidence suggests that the economic 元 personal economic evaluations can be for electoral be- vote is prevalent from Latin America(Singer 2013)to havior (Kramer 1971:Fiorina 1981:Duch and Steven Africa (Posner and Simon 2002)to Eastern Europe son 2008).While Doyle (2015),Meseguer,Lavezzolo, (Roberts 2008). and Aparicio(2016)and Acevedo(2016)have exam- Voters however,are not always able to establish ined the effect of financial remittances on individual a coherent link between economic outcomes and in- attitudes towards taxation and the state,only three au- cumbent action.Existing research shows that in devel- thors have explicitly linked the receipt of financial re- oping democracies,support for incumbents is largely mittances with the economic vote. determined by economic and political developments In the first study of this kind,Germano (2010) abroad,such as commodity price shocks (e.g.Leigh demonstrated that remittance recipients in Mexican 2009;Monteiro and Ferraz 2012).Focusing on Latin municipalities,due to the transnational social safety net America for example,Campello and Zucco(2016)pro- effect of remittances,are less likely to identify the econ- vide evidence that voters misattribute responsibility omy as a pressing problem relative to non-recipients for economic outcomes to incumbents.They develop and to have fewer economic grievances.Consequently, a 'Good Economic Times'index based on commodity the more positive egocentric and sociotropic outlook prices and US interest rates,which are exogenous to the of remittance recipients means that they are less likely control of Latin American governments.They demon- to oppose incumbent politicians (e.g.Germano 2013) strate that this index can help explain the re-election In a similar vein,Bravo(2012)has demonstrated that of incumbents and presidential popularity.When times in Latin American countries,financial remittances pos- are good,incumbents are rewarded and when times are itively influence presidential approval amongst recip- bad,incumbents are punished. ients and that this effect operates through more fa- In many respects,remittances are an even better test vorable egocentric and sociotropic evaluations of the of attribution in economic voting.Remittances are the economic situation.Ahmed (2017),again for a Latin "epitome of private transfers"(Bravo 2012,6).They American sample,has demonstrated that at high lev- go straight into the hands of the individuals that re- els of dissatisfaction with the incumbent,a remittance ceive them,often get transferred outside of formal recipient is more likely to vote for that incumbent,rela- bank channels,and for many countries in the world, tive to a non-recipient.What is particularly interesting lie largely outside of the incumbent's control.For this about these studies is the fact that,as Bravo(2012)has reason,existing work considers remittances as an excel- suggested,remittances are an exogenous capital flow lent identification strategy to test whether voters hold over which the incumbent government,in most situa- incumbents accountable for events beyond their con- tions,has little control.In this work,remittances appear trol (Bravo 2012).While it is possible for governments to be operating through a mechanism consistent with to control the inflow of remittances,mainly through pocketbook voting effects.It is from these studies that some form of tax on remitted income,or schemes to we take our cue. encourage migrants to remit more,or through manipu- lation of the official exchange rate (e.g.O'Neill 2001) Remittances and Economic Voting the regulation of remittances does not come cheap. One of the largest bodies of work in political science L is concerned with the importance of the economic Examples of taxes on remittances include a five percent tax on re- vote.Beginning with Downs'(1957)classic assertion mittances in Vietnam (which was removed in 1997),a state cross- that individuals will choose parties to best maximize border tax on remittances in Tajikistan(removed in 2003),an over- seas document stamp tax in the Philippines (removed for work their personal utility,work in this vein has demon- ers in 1995)and the tax that the Indian government levies on fees strated that support for the incumbent is based on from money transfer agents,but not on actual remittance flows(e.g. 760
Katerina Tertytchnaya et al. remittances, that is, the norms and ideas that migrants observe in their host country and transmit to family members in their country of origin, on individual level political behavior and preferences (e.g. Levitt 2001). This work suggests that social remittances can lead to higher rates of non-electoral political participation and more critical evaluations of democracy (PérezArmendáriaz and Crow 2010), higher rates of political activity and political interest (Córdova and Hiskey 2015) and support for a more enhanced role for the state (Meseguer, Lavezzolo, and Aparicio 2016). Less work studies the effect of financial remittances on the political behavior and attitudes of those that receive them. Given the scale of these transfers, in some contexts they can be as large as the national median income, and given that they are generally untaxed and go directly into the hands of the individuals that receive them, this would seem to be an oversight, particularly as we now know how important personal economic evaluations can be for electoral behavior (Kramer 1971; Fiorina 1981; Duch and Stevenson 2008). While Doyle (2015), Meseguer, Lavezzolo, and Aparicio (2016) and Acevedo (2016) have examined the effect of financial remittances on individual attitudes towards taxation and the state, only three authors have explicitly linked the receipt of financial remittances with the economic vote. In the first study of this kind, Germano (2010) demonstrated that remittance recipients in Mexican municipalities, due to the transnational social safety net effect of remittances, are less likely to identify the economy as a pressing problem relative to non-recipients and to have fewer economic grievances. Consequently, the more positive egocentric and sociotropic outlook of remittance recipients means that they are less likely to oppose incumbent politicians (e.g. Germano 2013). In a similar vein, Bravo (2012) has demonstrated that in Latin American countries, financial remittances positively influence presidential approval amongst recipients and that this effect operates through more favorable egocentric and sociotropic evaluations of the economic situation. Ahmed (2017), again for a Latin American sample, has demonstrated that at high levels of dissatisfaction with the incumbent, a remittance recipient is more likely to vote for that incumbent, relative to a non-recipient. What is particularly interesting about these studies is the fact that, as Bravo (2012) has suggested, remittances are an exogenous capital flow, over which the incumbent government, in most situations, has little control. In this work, remittances appear to be operating through a mechanism consistent with pocketbook voting effects. It is from these studies that we take our cue. Remittances and Economic Voting One of the largest bodies of work in political science is concerned with the importance of the economic vote. Beginning with Downs’ (1957) classic assertion that individuals will choose parties to best maximize their personal utility, work in this vein has demonstrated that support for the incumbent is based on voter evaluations of economic performance: when economic performance is deemed to be good, incumbents are rewarded and when economic performance is deemed bad, incumbents are punished or sanctioned (e.g. Kramer 1971; Fiorina 1981). This economic voting model has more sophisticated variants; most notably, competence models, which argue that voters go beyond a reward-punishment calculus and instead seek to select the most competent candidate, based on expectations developed with the available economic data they have observed (e.g. Stigler 1973; for an overview, see Duch and Stevenson 2008, 12–16). For this reason, economic voting comes with significant normative implications. It suggests that even in low-information environments with weak party systems, voters can assign responsibility for economic outcomes to the actions of incumbents, thereby establishing a chain of democratic accountability (Stokes 2001). In fact, across new democracies, evidence suggests that the economic vote is prevalent from Latin America (Singer 2013) to Africa (Posner and Simon 2002) to Eastern Europe (Roberts 2008). Voters however, are not always able to establish a coherent link between economic outcomes and incumbent action. Existing research shows that in developing democracies, support for incumbents is largely determined by economic and political developments abroad, such as commodity price shocks (e.g. Leigh 2009; Monteiro and Ferraz 2012). Focusing on Latin America for example, Campello and Zucco (2016) provide evidence that voters misattribute responsibility for economic outcomes to incumbents. They develop a ‘Good Economic Times’ index based on commodity prices and US interest rates,which are exogenous to the control of Latin American governments. They demonstrate that this index can help explain the re-election of incumbents and presidential popularity.When times are good, incumbents are rewarded and when times are bad, incumbents are punished. In many respects, remittances are an even better test of attribution in economic voting. Remittances are the “epitome of private transfers” (Bravo 2012, 6). They go straight into the hands of the individuals that receive them, often get transferred outside of formal bank channels, and for many countries in the world, lie largely outside of the incumbent’s control. For this reason, existing work considers remittances as an excellent identification strategy to test whether voters hold incumbents accountable for events beyond their control (Bravo 2012). While it is possible for governments to control the inflow of remittances, mainly through some form of tax on remitted income, or schemes to encourage migrants to remit more, or through manipulation of the official exchange rate (e.g. O’Neill 2001), the regulation of remittances does not come cheap.1 1 Examples of taxes on remittances include a five percent tax on remittances in Vietnam (which was removed in 1997), a state crossborder tax on remittances in Tajikistan (removed in 2003), an overseas document stamp tax in the Philippines (removed for workers in 1995) and the tax that the Indian government levies on fees from money transfer agents, but not on actual remittance flows (e.g. 760 Downloaded from https://www.cambridge.org/core. Shanghai JiaoTong University, on 26 Oct 2018 at 03:53:04, subject to the Cambridge Core terms of use, available at https://www.cambridge.org/core/terms. https://doi.org/10.1017/S0003055418000485
When the Money Stops TABLE 1. Remittances,Economic Assessments,and Support for the President Pocketbook Sociotropic Trust in Trust in Assessments Assessments the President the President Model(1) Model(2) Model(3) Model(4) Remittances 0.135* 0.048* 0.070* 0.056* (0.041) (0.027) (0.032) (0.031) Pocketbook 0.027* (0.005) Sociotropic 0.230# (0.008) Employed 0.122* -0.019 0.026 0.028 (0.022) (0.015) (0.018) (0.017) Education 0.289* 0.015 0.046* 0.035* (0.018) (0.012) (0.014) (0.014) Age -0.005* -0.001 0.005* 0.005* (0.001) (0.000) (0.001) (0.001) Male -0.024 0.010 -0.041 -0.043 (0.020) (0.013) (0.016) (0.016) Wealth 0.288* 0.065* 0.028*4 0.005 (0.007) (0.004) (0.005) (0.005) Rural 0.026 0.039* 0.1214 0.112种 (0.023) (0.015) (0.018) (0.018) Metropolitan -0.042 -0.095* -0.139* -0.116 (0.029) (0.019) (0.022) (0.022) Growth -0.026* 0.027* 0.0514 0.046 (0.015) 0.014) (0.021) (0.019) Constant 3.419*4 2.243* 2.325* 1.718*种 (0.159) (0.147) (0.213) (0.193) Log Likelihood -47618 -36722 -41312 -40778 AIC 95259 73468 82649 81585 BIC 95357 73566 82747 81699 Individuals 25,438 25,438 25,438 25,438 Countries 26 26 26 26 Notes:The table reports coefficients from hierarchical linear models (HLM)with standard errors in parentheses.The baseline category for settlement status(rural and metropolitan)is urban.For more information see Table B.1 and page 13 of the Supporting Information(SI)as well as see Tables C.1-C.3 for robustness checks.significant at p0.01,p.05,p<0.1 level.Source:EBRD Life in Transition Survey (LiTS),2006 Where taxes on remittances have been introduced in Germano 2013;Yang and Choi 2007),thereby increas- the past,they have tended to drive cash flows into in- ing their financial stability and reducing their eco- formal channels and black-market activity (see Moha- nomic grievances (Germano 2013).The net effect of patra et al.2012)and as such,remittances are usually this financial stability and greater consumption power untaxed.For example,in Kyrgyzstan,the case we are is more positive egocentric and sociotropic economic interested in here,the government has not manipulated evaluations.In turn,recipients'evaluations of the in- the exchange rate during the period covered in our data cumbent government will improve.Bravo(2012).Ger- (2010-2013),it has not engaged in any form of remit- mano(2013)and Ahmed(2017)provide evidence that tance incentive scheme,nor has it attempted to tax re- this is exactly what happens in Latin America.Across eys mittance inflows(Slay 2015). the Americas(Bravo 2012;Ahmed 2017),and in Mexi- Focusing on remittance payments alone,an influen- can municipalities(Germano 2013),remittance recipi- tial literature shows that they not only increase the ents exhibit greater support for incumbents relative to general consumable income of households that receive non-recipients,an effect that operates through the pos- them (e.g.Barajas et al.2009),but also provide re- itive egocentric and sociotropic economic evaluations cipients with a social safety net that can insure them of recipients. against economic shocks(Chaudhry 1997;Doyle 2015; We do not take issue with these arguments.We agree that the insurance and consumption effects of remit- tances are likely to increase economic optimism and re- Mohapatra,et al.2012).When Vietnam and Tajikistan removed their sult in support for the incumbent.In fact,in Table 1,we taxes on remittances,official flows significantly increased. broadly follow Bravo's(2012)analysis with data from 761
When the Money Stops TABLE 1. Remittances, Economic Assessments, and Support for the President Pocketbook Sociotropic Trust in Trust in Assessments Assessments the President the President Model (1) Model (2) Model (3) Model (4) Remittances 0.135∗∗∗ 0.048∗ 0.070∗∗ 0.056∗ (0.041) (0.027) (0.032) (0.031) Pocketbook 0.027∗∗∗ (0.005) Sociotropic 0.230∗∗∗ (0.008) Employed 0.122∗∗∗ − 0.019 0.026 0.028 (0.022) (0.015) (0.018) (0.017) Education 0.289∗∗∗ 0.015 0.046∗∗∗ 0.035∗∗∗ (0.018) (0.012) (0.014) (0.014) Age − 0.005∗∗∗ − 0.001 0.005∗∗∗ 0.005∗∗∗ (0.001) (0.000) (0.001) (0.001) Male − 0.024 0.010 − 0.041∗∗∗ − 0.043∗∗∗ (0.020) (0.013) (0.016) (0.016) Wealth 0.288∗∗∗ 0.065∗∗∗ 0.028∗∗∗ 0.005 (0.007) (0.004) (0.005) (0.005) Rural 0.026 0.039∗∗∗ 0.121∗∗∗ 0.112∗∗∗ (0.023) (0.015) (0.018) (0.018) Metropolitan − 0.042 − 0.095∗∗∗ − 0.139∗∗∗ − 0.116∗∗∗ (0.029) (0.019) (0.022) (0.022) Growth − 0.026∗ 0.027∗ 0.051∗∗ 0.046∗∗ (0.015) (0.014) (0.021) (0.019) Constant 3.419∗∗∗ 2.243∗∗∗ 2.325∗∗∗ 1.718∗∗∗ (0.159) (0.147) (0.213) (0.193) Log Likelihood −47618 −36722 −41312 −40778 AIC 95259 73468 82649 81585 BIC 95357 73566 82747 81699 Individuals 25,438 25,438 25,438 25,438 Countries 26 26 26 26 Notes: The table reports coefficients from hierarchical linear models (HLM) with standard errors in parentheses. The baseline category for settlement status (rural and metropolitan) is urban. For more information see Table B.1 and page 13 of the Supporting Information (SI) as well as see Tables C.1-C.3 for robustness checks. ∗∗∗ significant at p ≤ 0.01, ∗∗ p ≤ .05, ∗ p ≤ 0.1 level. Source: EBRD Life in Transition Survey (LiTS), 2006 Where taxes on remittances have been introduced in the past, they have tended to drive cash flows into informal channels and black-market activity (see Mohapatra et al. 2012) and as such, remittances are usually untaxed. For example, in Kyrgyzstan, the case we are interested in here, the government has not manipulated the exchange rate during the period covered in our data (2010-2013), it has not engaged in any form of remittance incentive scheme, nor has it attempted to tax remittance inflows (Slay 2015). Focusing on remittance payments alone, an influential literature shows that they not only increase the general consumable income of households that receive them (e.g. Barajas et al. 2009), but also provide recipients with a social safety net that can insure them against economic shocks (Chaudhry 1997; Doyle 2015; Mohapatra, et al. 2012).When Vietnam and Tajikistan removed their taxes on remittances, official flows significantly increased. Germano 2013; Yang and Choi 2007), thereby increasing their financial stability and reducing their economic grievances (Germano 2013). The net effect of this financial stability and greater consumption power is more positive egocentric and sociotropic economic evaluations. In turn, recipients’ evaluations of the incumbent government will improve. Bravo (2012), Germano (2013) and Ahmed (2017) provide evidence that this is exactly what happens in Latin America. Across the Americas (Bravo 2012; Ahmed 2017), and in Mexican municipalities (Germano 2013), remittance recipients exhibit greater support for incumbents relative to non-recipients, an effect that operates through the positive egocentric and sociotropic economic evaluations of recipients. We do not take issue with these arguments.We agree that the insurance and consumption effects of remittances are likely to increase economic optimism and result in support for the incumbent. In fact, in Table 1, we broadly follow Bravo’s (2012) analysis with data from 761 Downloaded from https://www.cambridge.org/core. Shanghai JiaoTong University, on 26 Oct 2018 at 03:53:04, subject to the Cambridge Core terms of use, available at https://www.cambridge.org/core/terms. https://doi.org/10.1017/S0003055418000485
Katerina Tertytchnaya et al. 26 countries in Central Eastern Europe.the Caucasus bents.but such effects could also dampen incumbent and Central Asia,drawn from the 2006 wave of the incentives to invest in welfare provisions(Doyle 2015) LiTS2(summary statistics are provided in Section A.2 and encourage governments to divert income into of the Supporting Information (SI)).With a simple di- patronage instead(Ahmed 2012).Declines in remit- chotomous measure of whether a respondent receives tances,caused by downturns in economies abroad,may remittances or not,two-level multilevel models pre- exacerbate economic grievances among the electorate sented in Table 1.demonstrate that,similar to Bravo's and lead to poor evaluations of the incumbent for (2012)results,financial remittances increase satisfac- events not necessarily under their control.In some tion with household (Model 1)and national (Model senses then,the flow of remittances to the developing 2)economic conditions.The effect of remittances on world would appear to be a political manifestation of trust towards the country's president in Model 3 is also economic dependency (e.g.Wibbels 2006). positive,and statistically significant.The effect of re- Moreover,while we agree with Bravo (2012)that mittances on political evaluations in Model 4 remains remittances are an excellent identification strategy to robust,even after we control for economic satisfaction test how individuals attribute responsibility for shocks at the household,and national level (for more infor- to their income and economic security,we think we mation see page 13 of the SI).Yet,what happens when can go one step further.Bravo(2012)argues that the remittance inflows change? bias introduced by unobserved household and individ- ual heterogeneity is likely to bias results downwards, given that those who migrate are most likely to come 元 CHANGES IN REMITTANCES AND INCUMBENT APPROVAL from households with more negative evaluations of the incumbent and status quo.3 Our panel data allows us to Remittances do not always reach recipient households overcome some of the potential sources of bias by em- at the same time and in the same amount,and changes ploying a within-subject design.By limiting our anal- in the frequency and value of remittances will affect ysis to remittance recipients alone,we are also able to the livelihood of households in developing economies address concerns regarding the unobserved differences across the world.During periods of economic contrac- between households that receive remittances and those tion in migrant host economies,remittance payments that do not. are likely to fall due to changing migration flows,cur- rency depreciation,or efforts by migrants to cut costs BACKGROUND AND CASE SELECTION (Mohapatra and Ratha 2010).In the midst of the global financial crisis for example,the World Bank estimated In the ensuing sections,we provide a detailed test of that remittance flows to developing countries declined whether and how fluctuations in remitted income af- by 6 percent between 2008 and 2009.What are the po- fect political attitudes.We first illustrate our argument litical effects of changes in remittance flows? with the case of Kyrgyzstan.Leveraging a unique four- We argue that recipients who experience a decline in wave panel study of Kyrgyz citizens between 2010- remittances become less satisfied with their economic 2013,the LiK surveys,we are able to carefully iden- situation,thereby undermining their support for the tify how changes in remittances affect variation inin- incumbent.Conversely,when remittances increase, cumbent approval.In a second step,we turn to cross- 5.5010 the economic evaluations of recipients will improve, sectional survey data from Central Eastern Europe,the resulting in an increase in incumbent support.In other Caucasus and Central Asia,collected in the aftermath words,remittance recipients are rewarding or punish- of the Great Recession in 2008-2010.Specifically,we ing incumbents for economic developments in migrant rely on the 2010 LiTS that includes survey data for 28 receiving economies that are largely outside of the countries in the region.4 control of politicians at home.While this may be a type Central Eastern Europe,Central Asia,and the Cau- of pocketbook voting,it also represents a form of mis casus provide a useful context for exploring how fluctu- attribution with normative implications for democratic ations in financial remittances affect political attitudes. accountability in remittance dependent states.Punish- For many of the countries in the region,remittances are ing or rewarding incumbents for events outside their one of the most important sources of external financ- control may distort the economic vote as an instrument ing after foreign direct investment.In the mid-2000s of accountability as it will undermine the direct link for example,financial remittances were equivalent to between government action,voters and electoral 20 percent of GDP in Moldova,Bosnia and Herzegov- sanctions (Campello and Zucco 2017).For remittance ina and over 10 percent in Albania and Armenia.Yet, receiving countries,incumbent approval will be subject to economic conditions in countries elsewhere.If coun tercyclical,remittances may'buffer'recipients from the Of course,it is possible that in a global or regional crisis,recipients may experience a decline in their remitted income and still blame vagaries of the economy and bolster support for incum- their government for their perceived role in the wider regional crisis above and beyond any changes in their remittances. The countries included in the analysis are:Albania,Armenia,Azer- 2 These countries are:Albania,Armenia,Azerbaijan,Bosnia- baijan,Belarus,Bosnia-Herzegovina,Bulgaria,Croatia,the Czech Herzegovina,Bulgaria,Croatia,the Czech Republic,Estonia Republic,Estonia,Georgia,Hungary,Kazakhstan,Kosovo,Kyr- Georgia,Hungary,Kazakhstan,Kyrgyzstan,Latvia,Lithuania gyzstan,Latvia,Lithuania,Moldova,Montenegro,FYR Macedo- Moldova,Montenegro,FYR Macedonia,Poland,Romania,Russia, nia.Poland,Romania,Russia.Serbia.Slovakia.Slovenia.Tajikistan Serbia,Slovakia,Slovenia,Tajikistan,Ukraine and Uzbekistan. Ukraine and Uzbekistan. 762
Katerina Tertytchnaya et al. 26 countries in Central Eastern Europe, the Caucasus and Central Asia, drawn from the 2006 wave of the LiTS2 (summary statistics are provided in Section A.2 of the Supporting Information (SI)). With a simple dichotomous measure of whether a respondent receives remittances or not, two-level multilevel models presented in Table 1, demonstrate that, similar to Bravo’s (2012) results, financial remittances increase satisfaction with household (Model 1) and national (Model 2) economic conditions. The effect of remittances on trust towards the country’s president in Model 3 is also positive, and statistically significant. The effect of remittances on political evaluations in Model 4 remains robust, even after we control for economic satisfaction at the household, and national level (for more information see page 13 of the SI). Yet, what happens when remittance inflows change? CHANGES IN REMITTANCES AND INCUMBENT APPROVAL Remittances do not always reach recipient households at the same time and in the same amount, and changes in the frequency and value of remittances will affect the livelihood of households in developing economies across the world. During periods of economic contraction in migrant host economies, remittance payments are likely to fall due to changing migration flows, currency depreciation, or efforts by migrants to cut costs (Mohapatra and Ratha 2010). In the midst of the global financial crisis for example, the World Bank estimated that remittance flows to developing countries declined by 6 percent between 2008 and 2009. What are the political effects of changes in remittance flows? We argue that recipients who experience a decline in remittances become less satisfied with their economic situation, thereby undermining their support for the incumbent. Conversely, when remittances increase, the economic evaluations of recipients will improve, resulting in an increase in incumbent support. In other words, remittance recipients are rewarding or punishing incumbents for economic developments in migrant receiving economies that are largely outside of the control of politicians at home.While this may be a type of pocketbook voting, it also represents a form of misattribution with normative implications for democratic accountability in remittance dependent states. Punishing or rewarding incumbents for events outside their control may distort the economic vote as an instrument of accountability as it will undermine the direct link between government action, voters and electoral sanctions (Campello and Zucco 2017). For remittance receiving countries, incumbent approval will be subject to economic conditions in countries elsewhere. If countercyclical, remittances may ‘buffer’ recipients from the vagaries of the economy and bolster support for incum- 2 These countries are: Albania, Armenia, Azerbaijan, BosniaHerzegovina, Bulgaria, Croatia, the Czech Republic, Estonia, Georgia, Hungary, Kazakhstan, Kyrgyzstan, Latvia, Lithuania, Moldova, Montenegro, FYR Macedonia, Poland, Romania, Russia, Serbia, Slovakia, Slovenia, Tajikistan, Ukraine and Uzbekistan. bents, but such effects could also dampen incumbent incentives to invest in welfare provisions (Doyle 2015) and encourage governments to divert income into patronage instead (Ahmed 2012). Declines in remittances, caused by downturns in economies abroad, may exacerbate economic grievances among the electorate and lead to poor evaluations of the incumbent for events not necessarily under their control. In some senses then, the flow of remittances to the developing world would appear to be a political manifestation of economic dependency (e.g. Wibbels 2006). Moreover, while we agree with Bravo (2012) that remittances are an excellent identification strategy to test how individuals attribute responsibility for shocks to their income and economic security, we think we can go one step further. Bravo (2012) argues that the bias introduced by unobserved household and individual heterogeneity is likely to bias results downwards, given that those who migrate are most likely to come from households with more negative evaluations of the incumbent and status quo.3 Our panel data allows us to overcome some of the potential sources of bias by employing a within-subject design. By limiting our analysis to remittance recipients alone, we are also able to address concerns regarding the unobserved differences between households that receive remittances and those that do not. BACKGROUND AND CASE SELECTION In the ensuing sections, we provide a detailed test of whether and how fluctuations in remitted income affect political attitudes. We first illustrate our argument with the case of Kyrgyzstan. Leveraging a unique fourwave panel study of Kyrgyz citizens between 2010– 2013, the LiK surveys, we are able to carefully identify how changes in remittances affect variation in incumbent approval. In a second step, we turn to crosssectional survey data from Central Eastern Europe, the Caucasus and Central Asia, collected in the aftermath of the Great Recession in 2008–2010. Specifically, we rely on the 2010 LiTS that includes survey data for 28 countries in the region.4 Central Eastern Europe, Central Asia, and the Caucasus provide a useful context for exploring how fluctuations in financial remittances affect political attitudes. For many of the countries in the region, remittances are one of the most important sources of external financing after foreign direct investment. In the mid-2000s for example, financial remittances were equivalent to 20 percent of GDP in Moldova, Bosnia and Herzegovina and over 10 percent in Albania and Armenia. Yet, 3 Of course, it is possible that in a global or regional crisis, recipients may experience a decline in their remitted income and still blame their government for their perceived role in the wider regional crisis, above and beyond any changes in their remittances. 4 The countries included in the analysis are:Albania,Armenia,Azerbaijan, Belarus, Bosnia-Herzegovina, Bulgaria, Croatia, the Czech Republic, Estonia, Georgia, Hungary, Kazakhstan, Kosovo, Kyrgyzstan, Latvia, Lithuania, Moldova, Montenegro, FYR Macedonia, Poland, Romania, Russia, Serbia, Slovakia, Slovenia, Tajikistan, Ukraine and Uzbekistan. 762 Downloaded from https://www.cambridge.org/core. Shanghai JiaoTong University, on 26 Oct 2018 at 03:53:04, subject to the Cambridge Core terms of use, available at https://www.cambridge.org/core/terms. https://doi.org/10.1017/S0003055418000485