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

Daniele Girardi and Samuel Bowles

Journal of Development Economics, 2018, vol. 134, issue C, 16-27

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. The most parsimonious interpretation of these share price changes is that they reflected, respectively, the perceived threat to private ownership of the means of production under a socialist government, and its subsequent reversal.

Keywords: Institutional shocks; Natural experiment; Share prices; Chile; Socialism; Military coup; Elections (search for similar items in EconPapers)
JEL-codes: P00 P16 D02 E02 N2 (search for similar items in EconPapers)
Date: 2018
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