The Partisan Reversal: Partisanship and Exchange Rate Policy in Closed and Open Economies
2025-10-10
abstract: Economic globalization is widely believed to cause the policies of left-and right-wing parties to converge. The authors argue that globalization can have an even more profound impact on partisan politics, fully reversing the positions of left and right parties. This article demonstrates that financial globalization transforms party positions in one important policy area: the degree of exchange rate overvaluation or undervaluation. At low levels of capital mobility, left-wing parties are more likely to overvalue the exchange rate than are right-wing parties because doing so redistributes income from capital to labor. As capital mobility rises, overvalued exchange rates become costlier for workers but more attractive to firms. Accordingly, right-wing parties maintain more overvalued exchange rates than do left parties at high levels of capital mobility. Analyses of time-series cross-sectional data support these hypotheses. The results indicate that globalization can have transformative effects on the relationship between partisanship and economic policy.