Financial Globalization and Firms' Political Contributions: Evidence from Brazil

• In Event: The Global Economy and the Welfare State

Abstract

Do global capital flows affect firms' campaign contributions? While there is broad agreement that financial integration affects left and right governments differently, little is still known about the effects of global financial flows on electoral competition. I argue that improvements in global financial conditions loosen firms' financing constraints, enabling them to not only increase donations to the market-friendly right, but also to invest in access to the left as insurance. Starting from a lower contribution baseline, left parties benefit relatively more from positive global shocks. Using firm-level data on political contributions in Brazilian elections for 1994--2014, I find that lower global interest rates and larger capital inflows raise absolute contributions to left parties and shift firms' relative allocation of funds towards the left. A comparison of firms with access to international capital markets and firms without access provides direct evidence of the financing mechanism. The findings highlight the link between global capital flows, corporate finance, and partisan competition, and underscore some of the challenges of electoral accountability in financially-open economies.

Author

• Raphael Cunha, Florida State University