The Economic Origins of Authoritarian Values: Evidence From Local Trade Shocks in the United Kingdom

What explains the backlash against the liberal international order? Are its causes economic or cultural? We argue that while cultural values are central to understanding the backlash, those values are, in part, endogenous and shaped by long-run economic change. Using an original survey of the British population, we show that individuals living in regions where the local labor market was more substantially affected by imports from China have significantly more authoritarian values and that this relationship is driven by the effect of economic change on authoritarian aggression. This result is consistent with a frustration-aggression mechanism by which large economic shocks hinder individuals’ expected attainment of their goals. This study provides a theoretical mechanism that helps to account for the opinions and behaviors of Leave voters in the 2016 UK referendum who in seeking the authoritarian values of order and conformity desired to reduce immigration and “take back control” of policymaking.

ROLE OF GOLD IN FOREIGN EXCHANGE RESERVES OF COMMODITY EXPORTING COUNTRIES

The gold is still a reserve asset with specific features yet the variants of reserve management have improved considerably. Tendency to maintain ultra-low real interest rates potentially should affect the upward shift in demand on gold because alternative costs of holding it are declining. Demand for gold has indeed risen from the side of central banks recently. At the same time, there is no consensus in economic literature about optimal share of gold in foreign exchange reserves. However, it is presumed that incentives for more diversification are stronger than reserves hoarding is abnormal. Commodity exporters have accumulated large reserve over the last decades. Thus, their diversification decisions in favour of gold seem to be natural. However, empirical analysis paints a more complicated picture. A) Commodity exporters are getting to be more and more heterogeneous in terms holding gold as a share of foreign assets. Such heterogeneity is more vivid compared to the world as a whole. B) Distribution of gold reserves among commodity exporters is changing toward increasing number of countries with gold holdings over the median size for the group. C) There is direct correlation between global commodity prices and gold holdings in tons, but an inverse relationship in the case of share of gold in reserves. This leads to the conclusion that there are two types of demand on gold: endogenous as a function of gradual hoarding of foreign exchange reserves, and specific, that is driven by specific portfolio management needs and non-economic factors. This finding is consistent with features of holding reserves in countries with large hoarding and strong vulnerability to terms-of-trade shocks and features of political regimes in countries with resource abundance.