new government has announced plans to nationalize large swaths of economic activity. By design our measures of policy volatility would not detect the increase in uncertainty observed in the first scenario but may be a good way to capture the essence of what is happening in the second scenario. Arguably the uncertainty created by the type of issues exemplified in the second scenario is particularly relevant in a developing country context.

The third reason why our measure of the volatility of policy priorities is of interest takes us beyond the issue of uncertainty. In addition to increasing uncertainty, frequent changes in policy priorities can also negatively impact the performance of the public sector. As the World Bank’s World Development Report 2017 on governance and the law argues, the result of a proliferation of competing interests in the policy arena may be that public institutions become “overloaded with multiple pressures, undermining the coherence and effectiveness of public policies” (WDR 2017:24). Because our measure of policy volatility is at the level of priorities, we capture this source of ineffectiveness.

Our measure of policy priorities has also disadvantages. Annual presidential speeches are not the only vehicle for conveying policy priorities to the public. In addition, any methodology that extracts and codifies information from texts is a form of a simplification. Moreover, policy makers can express priorities but fail to deliver on them. This limitation, however, is less of an issue when addressing the question of our paper, since we are interested in the volatility of policy priorities.

The message on the importance of policy uncertainty is particularly relevant in Latin America – a region where analysts and policy makers have in the last couple of decades been searching for the reasons why the policy reforms of the 1980s and 1990s did not deliver the expected results. Analyses of the experience with policy reform in Latin America have pointed out the importance of credibility (or lack of it) of reforms, and explored the institutional settings which gave rise to credible reforms (Tommasi, 2006). Our analysis can help inform this literature on the political economy of reform in Latin America by providing a proxy measure of policy volatility, a factor which is hypothesized in the literature to be a contributor to the limited credibility of reforms.

The rest of the paper is organized as follows. Section two presents the data set we built as well as some descriptive statistics. The third section discusses the topic modeling methodology – using a Latent Dirichlet Allocation (LDA) algorithm – and implements this approach to the data set of presidential speeches to obtain the evolution of topics over time. In section four we produce a new measure of the volatility of policy priorities based on the topics uncovered using the LDA algorithm. In section five, we explore how the volatility of policy priorities correlates with long-term growth. We document that higher volatility of policy priorities appears to be associated with lower growth in the long-run and check that this correlation is robust to alternative measures of policy volatility. Section six concludes.

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