DO LEADERS MATTER?

DO LEADERS MATTER? NATIONAL LEADERSHIP AND GROWTH SINCE WORLD WAR II

B.F. Jones & B.A. Olken

Quarterly Journal of Economics, Vol. 120, No. 3 (2005)

Principal Research Question and Key Result Are growth rates influenced by individual leaders? By exploiting exogenous variation in leadership the authors conclude that leaders do in deed matter for growth. This result holds only for changes in leaders in autocratic regimes, not in democratic regimes.
Theory Leaders may have some agency, but they are constrained by a historically determined set of choices from which they must make decisions according to Marx. A conflicting view is the “great man” view whereby outcomes are determined by highly idiosyncratic leadership. A more moderate view is that of Weber who claims that charismatic leadership can be deterministic in certain settings, but only when the institutional norms etc. do not constrain the actions of the leader. In other words it is the interaction between leaders and institutions that will determine the ability of the leader to influence outcomes.
Motivation Countries experience dramatic reversals of fortunes, either experiencing huge increases/decrease in growth. Given that factors such as institutions and human capital that are widely thought to be important determinants of growth are likely to be largely persistent over time, then there must be some other factor that can explain these observed growth shocks. If institutions are important then it could be that leaders in some sense substitute for, or partly control institutions and therefore exert personal influences on growth.
Data Growth indicators from Penn tables in a panel from 1945-2000 for countries who experienced a leadership transition due to natural/accidental death of the leader. This amounts to 57 leadership transitions. However, the estimation is made with all years and all countries as this helps to estimate the time fixed effects.
Strategy Leadership transitions are not exogenously determined as economic outcomes can help leaders to maintain power. Death is however an exogenous source of variation in leaders once assassinated leaders have been stripped out, so the authors use growth data in countries in which a leader has died of natural/accidental causes.They include dummies for PRE and POST which are true in the T years before/after the death of the leader and will pick up average growth rates in those years. Then Post/Pre represents that change in growth around the death of the leader, and the variance of that measure represents the average volatility of differences in growth outcomes surrounding leadership deaths. It is the variance in which we are most interested. Time and state fixed effects are included.

T is 5 years, and the actual year of death is not included so as to exclude turbulence only related to leadership succession.

Results
  • Variance in the POST-PRE coefficients is 31% higher around leadership transitions that it would be normally.  The actual difference in growth however does not seem to systematically increase nor decrease.
  • Using the Polity IV data set they codify countries into autocracies and democracies as it may be the case that the degree to which leaders matter is a function of their context i.e. different institutional structures allow for greater/lesser idiosyncratic effect of leaders. The results indicate that autocratic leaders have a significant effect on growth at all timings, whereas there is no significant effects for the death of democratic leaders.
  • Of the autocracies there are strong effects where there are no political parties, and no effects where there are political parties, and similarly for legislatures which indicates that leaders have more effect where institutions are weak. These distinctions are not simply being driven by income. If the poorest states could not afford good institutions then the effects would be larger for poorer states as institutions would be less of a constraint. This is not the case; the autocrat effects are most pronounced for middle income states indicating that extremely low or non-existent institutions in poor states may limit the ability of the leader to influence national outcomes.
Robustness
  • They check correlations between econ variables and the death of the leaders to check that death is not caused in some way by economic outcomes and find no convincing link. They also find that the dead leaders were an average of 8 years older than other leaders which is consistent with death being caused by complications due to ageing.
  • T is allowed to be 3 and 7  years
  • The timing T is also allowed to be t+1 and t+2 years after the actual death of the leader.
  • Pre and Post are shifted 5 and 6 years backwards as a placebo test and the null hypothesis that there is no change in the variance of Pre-Post is not rejected.
  • They run similar regressions for changes in monetary policy (measured by inflation rate), growth of government expenditures, growth in international trade, and the state of conflict in the country. Only the inflations rate is significant, and it appears to change most immediately around the death of the leader, and again the results only hold for autocrats, not democrats. Thus it appears that leaders can strongly affect monetary policy but no other growth oriented policies.
Problems
  • There is little theory to suggest exactly why leaders may matter for growth. They identify monetary policy as changing significantly around the death of a leader which could imply that it was through this channel that the leader was influencing growth, however, the implication is not proved. Also it might be questioned as to whether monetary policy really is the only channel through which leaders matter. For example, perhaps new leaders seek too cement approval by improving health or education benefits, and this is why growth is found to increase slightly after the death of an autocrat. Ultimately the paper tells us that leaders are important, but it is not able to state exactly why.
  • There are minor concerns about the exogeneity of the death if developing countries have worse healthcare/infrastructure and hence leaders are more likely to die in those places.
  • Other things could be happening in the transition period especially in autocratic states. If one leader is replaced with a successor more/less favourable to the West then the state may receive more/less overseas aid and other assistance, and this could increase growth and be driving the results.
  • What are the policy implications? The growth differentials are presumably because leaders are pursuing different policies, but what are they? Monetary policy is identified, but why could they not have tested for health, education, credit markets, R&D and all the other policy variables that are thought to determine growth outcomes.
Implications
  • The Solow growth model maintains that growth is determined by population growth, labour market growth, capital and technology. This article challenges that in some respects by showing that leaders also matter.
  • If the specification is correct it suggests that whilst institutions such having political parties and legislatures [which are arguable better institutional variables rather than property rights etc. which are outcomes rather than institutions – see Gleaser] are important for growth they are deterministic only to the extent that they limit the action of leaders. What is important for determining growth, holding constant those institutions are the policies pursued. The implications are therefore hard to assess, as what is really needed for growth are good policies imposed by benign dictators, but there are clearly logical and moral problems with this approach.
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One Comment

  1. Posted April 10, 2012 at 1:49 pm | Permalink | Reply

    Reblogged this on Gabriel Rega and commented:
    Não estamos mais na época de eleição presidencial, mas mantenhamos na cabeça os resultados.
    Dever de casa: fazer os meus resumos com esta estrutura.

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