Long Live Democracy: The Determinants of Political Instability in Latin America

In this paper, we investigate the determinants of political instability in Latin America. In a panel of 18 Latin American countries from 1971 to 2000, we find that democratic countries experience less average instability in the region, indicating that the move to increased democracy in the last couple decades may alleviate the persistent problem of instability in the area. We also find that income inequality and ethnic fractionalization are important determinants of instability. Countries with low levels of inequality also suffer less instability on average, while ethnic diversity has a non-linear effect on instability. Many macroeconomic variables commonly thought to bring about political instability, such as inflation and high budget deficits, are not significantly correlated with instability in our sample. Only openness to trade has a significant negative effect on political instability. Only openness to trade has a significant negative effect on political instability *corresponding author JEL Codes: O11, O38, O15, 054