Global economics and national politics

Abstract

This paper contributes to the literature on the political economy of increased capital mobility. Two parties, one from the left and one from the right, compete for position. The election is to be held in the future and the outcome is uncertain. Prior to the elections, the members of both parties nominate their prime ministerial candidates. Investors mind about the outcome since they may invest in irreversible domestic capital. We find that there is political convergence in the nomination process. In some circumstances it is only the median voter in the left wing party that elects a more moderate candidate. In other instances the median voters of both parties’ electorate nominate more conservative candidates, but there is still convergence. Furthermore, we show that a higher probability of the left winning the election increases the degree of convergence, while a more globalized economy (increased capital mobility) reduces it.