## Elections Matter: Capital Flows and Political Cycles

_IMF Working Papers, November 14, 2025_

## Source details

**Canonical URL:** [Elections Matter: Capital Flows and Political Cycles](https://www.imf.org/en/publications/wp/issues/2025/11/14/elections-matter-capital-flows-and-political-cycles-571782)

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## Bibliographic details
- Authors: Maria Arakelyan, Tatiana Evdokimova
- Published: November 14, 2025
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798229031813.001

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### Summary
- The paper examines the impact of political uncertainty, proxied by elections, on international capital flows to emerging market economies.
- Using quarterly data for a panel of 38 emerging market economies from 1990 to 2020, the authors find that periods surrounding elections are associated with a decline in gross private capital inflows.
- The adverse impact is larger and more persistent when uncertainty extends beyond the election period (for example, when incumbent’s loss creates uncertainty about policy priorities).
- Higher levels of overall political stability appear to mitigate the adverse effects of elections on capital flows.
- Stronger institutions—reflected in indicators such as regulatory quality and rule of law—help to mitigate the adverse effects of political uncertainty on capital flows.
- Results are robust across a range of alternative specifications, including controls for standard economic drivers of capital flows, election characteristics, and model assumptions.

### Methodology
- Empirical framework: elections incorporated as a proxy for political uncertainty within a standard push-pull framework for analyzing capital flows.
- Data: quarterly frequency; panel of 38 emerging market economies; sample period 1990 to 2020.
- Outcome variable emphasized: gross private capital inflows.
- Controls included: standard economic drivers of capital flows and election characteristics (specific controls not enumerated on the page).

### Major Findings
- Election periods are associated with declines in gross private capital inflows.
- The negative effect is:
  - Larger when political uncertainty persists beyond the immediate election period.
  - More persistent in contexts of incumbent loss and associated uncertain policy priorities.
- Institutional and political environment interactions:
  - Higher overall political stability mitigates adverse election effects.
  - Stronger institutions (regulatory quality, rule of law) mitigate adverse election effects.

### Robustness and Sensitivity
- The core results remain robust to:
  - A range of alternative model specifications.
  - Inclusion of controls for standard economic drivers of capital flows.
  - Variation in election characteristics.
  - Alternative model assumptions.

### Policy-relevant implications (as implied by findings)
- Policies that enhance political stability can reduce election-related capital flow volatility.
- Strengthening institutional quality—improving regulatory quality and the rule of law—can mitigate adverse capital flow responses to political uncertainty.
- Reducing post-election policy uncertainty (for example, through clearer policy commitments or transition arrangements) may lessen the persistence and magnitude of election-related capital outflows.

*Source: IMF Working Paper “Elections Matter: Capital Flows and Political Cycles” by Maria Arakelyan and Tatiana Evdokimova.*

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_Source: https://www.imf.org/en/publications/wp/issues/2025/11/14/elections-matter-capital-flows-and-political-cycles-571782_