Exogenous shocks and voting behaviour

Populism and populist leaders have been grabbing the headlines of the international media for the better part of the 2010s. The elections of Donald Trump and Jair Bolsonaro, the BREXIT referendum and Boris Johnson becoming Prime Minister, the growing popularity of populist discourse exemplified by the emergence of AfD (Alternative für Deutschland), National Rally (Rassemblement national), Northern League (Lega Nord) etc. have made these themes a common sight in politics. A stream of literature using econometric methods has analysed the connection between economic factors, cultural factors and the share of the populist vote, however the results have been mixed. While Inglehart and Norris (2016) and Mutz (2018) found that cultural factors influence voters far more when voting for populist parties, Guiso et al., (2018) found the opposite: economic decline will influence voters to vote for populist parties. It is interesting to note that most of the cross-country and comparative articles focused on Western Europe, US or Latin-America therefore it is not known whether the models created, and explanations given, to investigate causal relations will work in Central and Eastern Europe. Therefore, this article wishes to add to the growing literature which explains the rise of populism due to economic reasons, through analysing the case of Central and Eastern Europe. A major challenge in understanding voting behaviour, is to know which factor led to an individual voting for a particular party, and at the same time limiting endogeneity and ruling out reverse causality. This can be done by focusing on a major, unexpected, and external shocks, which had unexpected effects on certain parts of the population. This paper identifies two major shocks for investigation: the unemployment shock of the Financial Crisis of 2008/2009 and the globalization shock of China joining the WTO in 2001 and trading more freely with the rest of the world. The shock of the financial crisis led to a huge rise in unemployment for which the traditional parties had no answers, leading for voters to seek out alternative parties, promising them quick and easy solutions. The globalization shock of China joining the WTO, led to manufacturing regions experiencing additional competition for the goods they produced resulting in layoffs and loss of business. This had the same effect by increasing support for populist parties. This article uses a 2SLS estimation method and IV variables to test the relationship between exogenous shocks and voting for populist parties. The panel dataset used, includes the European Social Survey as well as regional (NUTS-2) datasets. The article finds that both unemployment and both the globalization shock are significant factors in explaining the populist vote, therefore if governments want to act against it, they have to provide fiscal support to people suffering from the exogenous effects of financial crises and globalization.