Does the World Economy Swing National Elections?*
| Author | Andrew Leigh |
| Date | 01 April 2009 |
| DOI | http://doi.org/10.1111/j.1468-0084.2008.00545.x |
| Published date | 01 April 2009 |
163
©Blackwell Publishing Ltd and the Department of Economics, University of Oxford, 2009. Published by Blackwell Publishing Ltd,
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OXFORD BULLETIN OF ECONOMICS AND STATISTICS, 71, 2 (2009) 0305-9049
doi: 10.1111/j.1468-0084.2008.00545.x
Does the World Economy Swing National
Elections?Å
Andrew Leigh
Research School of Social Sciences, Australian National University, HC Coombs Building,
ANU, Canberra, ACT 0200, Australia (e-mail: andrew.leigh@anu.edu.au)
Abstract
Do voters reward national leaders who are more competent economic managers, or
merely those who happen to be in power when the world economy booms? Using
data from 268 democratic elections held between 1978 and 1999, I compare the effect
of world growth (luck) and national growth relative to world growth (competence).
Both matter, but the effect of luck is larger than the effect of competence. Voters are
more likely to reward competence in countries that are richer and better educated;
and there is some suggestive evidence that media penetration rates affect the returns
to luck and competence.
I. Introduction
Are national leaders more likely to be re-elected when the world economy booms?
Or do voters benchmark their country’s economic performance against other nations?
This paper provides new evidence on whether voters behave according to a purely
rational model by considering the impact of an exogenous factor – the state of the
world economy – on the outcomes of 268 national elections taking place in the last
quarter of the twentieth century.
That the economy affects elections has been amply demonstrated, including in
the United States House of Representatives (Stigler, 1973; Jacobson and Kernell,
1983; Lewis-Beck and Rice, 1984), the United States Presidential race (Hibbs, 1982;
*Thanks are due to Geoffrey Brennan, Magnus Feldmann, Seema Jayachandran, Dale Jorgenson, Warwick
McKibbin, John Quiggin, Susanne Schmidt, Gilles Serra, Martin West,two anonymous referees and Associate
Editor Jonathan Temple for feedback on earlier drafts. I am particularly indebted to Christopher Jencks and
Justin Wolfers for valuable discussions.
JEL Classification numbers: D72, D80, O40.
164 Bulletin
Markus, 1988; Fair, 2002), Canada (Nadeau and Blais, 1993) and Australia (Jack-
man and Marks, 1994; Cameron and Crosby, 2000; Wolfers and Leigh, 2002; Leigh
and Wolfers, 2006). Other studies have looked at Organization for Economic Co-
operation and Development (OECD) countries (Alesina, Roubini and Cohen, 1999),
Latin American nations (Remmer, 1991) and groups of developing countries (Pacek
and Radcliff, 1995; Schuknecht, 1996). However, this literature has principally
focused on political business cycles and election forecasting, rather than on sepa-
rating the effect of the world economy from the effect of national economic
performance.1
According to rational voting models, voters should make their decisions based
purely on politicians’competence, and not on factors outside their control.2However,
studies since that of Downs (1957) argue that voters will be ‘rationally ignorant’,
as there is virtually no chance that their vote will influence the outcome (see also
Brennan and Lomasky, 1993; Mulligan and Hunter, 2003). Another way of viewing
the problem is that cognitive resources are scarce (Gabaix and Laibson, 2005;
Gabaix et al., 2006), and individuals therefore choose to economize on decision time
by using rules of thumb to decide how to vote.
In the context of United States gubernatorial elections, Wolfers (2007) shows
that a model of quasi-rationality may be more appropriate. Analysing whether voters
parse out the effect of the national economy, he finds that while voters make some
attempt to evaluate their state’s economy relative to the national economy, those in
pro-cyclical states are consistently fooled into re-electing incumbents during national
booms, and dumping them during national recessions.3
Here, I shift the analysis up one level – exploring whether voters in national elec-
tions attempt to evaluate their country’s economic performance relative to the world
economy. So far as I am aware, this is the first paper to look at the effect of world
growth on national election outcomes.
Figure 1 charts annual growth in real per capita GDP against the fraction of
democratic elections in which the party of the incumbent national leader is re-
elected (excluding the US and Japan). There appears to be a positive relationship
between the two, with both re-election rates and growth notably rising in 1978,
1988 and 1999. This suggests that voters may not be consistently separating the
1When estimating political business cycle models across OECD countries, Alesina et al. (1999) control for
the world business cycle in some of their specifications, but they do not focus upon the effect of world growth
on national elections.
2For example, Alesina et al. (1999, p. 253) state that: ‘Although important work in macro-political eco-
nomics predates the rational expectations revolution in macroeconomics, a new literature emerged as a result
of developments in the rational theory of economic policy. This literature emphasizes the constraints that the
assumption of individual rationality imposes on the ability of policy-makers to systematically, predictably, and
permanently influence the state of the economy along an inflation-unemployment trade-off; and policymakers’
ability to systematically fool the electorate’. For evidence that politicians can affect the macroeconomy, see
also Alesina and Rosenthal (1995) and Snowberg, Wolfers and Zitzewitz (2007).
3Ebeid and Rodden (2006) look at a narrower subset of years than Wolfers (2007), and find that the rela-
tive performance of the state economy matters more for voters in non-agricultural states. See also Leigh and
McLeish (2009), who find similar results using data from Australian state elections.
©Blackwell Publishing Ltd and the Department of Economics, University of Oxford 2009
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