merit, chance, and the international determinants of government success
DESCRIPTION
Extended results, data, and replication code for all analyses in this paper will be permanently made publicly available prior to publication. Previous versions of this paper and related work were presented at meetings of the International Political Economy Society (2012 and 2013), Latin American Political Economy Network (2013), and Brazilian Political Science Association (2014), as well as at seminars at the University of Florida, Princeton University, the Universidad Catolica de Chile, Brazilian Senate, Inter-American Development Bank, and the Brazilian School of Business and Public Administration. We thank participants at these venues, grant reviewers at the Bobst Center at Princeton University, as well as Ashoka Mody, Octavio Amorim Neto, Bob Kaufman, Thomas Fujiwara, Larry Bartels, John Londregan, Helen Milner, Chris Davis, Ezra Suleiman, Joanne Gowa, Vicky Murillo, Kosuke Imai, and Chris Achen for comments.TRANSCRIPT
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Electronic copy available at: http://ssrn.com/abstract=2182187
Merit, Chance, and the International Determinants ofGovernment Success
Daniela CampelloAssistant Professor
Fundacao Getulio VargasPraia de Botafogo 190, Rio de Janeiro/RJ, Brazil
Cesar Zucco Jr.Assistant Professor
Fundacao Getulio VargasPraia de Botafogo 190, Rio de Janeiro/RJ, Brazil
Approx. Word Count: 10,880 (including tables, figures, and notes)
Abstract
Economic voting is a widely accepted regularity in the political science literature,yet most work on the subject either assumes that economic performance is a directresult of policymaking or, more recently, argues that voters can tell when this is notthe case. Our paper challenges these claims by showing that, in a large subset ofLatin American countries, both presidential popularity and presidents prospects ofreelection strongly depend on factors that are unambiguously exogenous to leadersdecisionsnamely commodity prices and international interest rates. The findingsimply that, in these countries, (1) there is retrospective economic voting even thoughmost of economic performance is determined exogenously, and (2) voters do notdiscount chance when evaluating incumbent governments, rewarding presidentswhen the world economy is favorable and punishing them in bad times.
Extended results, data, and replication code for all analyses in this paper will be permanently madepublicly available prior to publication. Previous versions of this paper and related work were presentedat meetings of the International Political Economy Society (2012 and 2013), Latin American PoliticalEconomy Network (2013), and Brazilian Political Science Association (2014), as well as at seminars atthe University of Florida, Princeton University, the Universidad Catolica de Chile, Brazilian Senate,Inter-American Development Bank, and the Brazilian School of Business and Public Administration.We thank participants at these venues, grant reviewers at the Bobst Center at Princeton University,as well as Ashoka Mody, Octavio Amorim Neto, Bob Kaufman, Thomas Fujiwara, Larry Bartels, JohnLondregan, Helen Milner, Chris Davis, Ezra Suleiman, Joanne Gowa, Vicky Murillo, Kosuke Imai, andChris Achen for comments.
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Electronic copy available at: http://ssrn.com/abstract=2182187
Carlos Andres Perez governed oil-rich Venezuela for the first time between 1974 and
1979, during an unprecedented oil boom. A decade after leaving the presidency with
high popular approval Perez won another term on the promise of reviving the good old
days. His second government coincided with the lowest oil prices in modern history and,
not surprisingly, the president could not live up to his promise. After mass protests and
two coup attempts Perez was forced out of office before finishing his term. Even though
the president could not set oil prices, Venezuelans neither adjusted their expectations in
the face of a rough economic scenario in the early 1990s, nor discounted the impressive
performance delivered in the 1970s.
Dependence on the prices of commoditiessuch as oilis not the only characteris-
tic that exposes Latin American economies to international economic conditions. When
the Federal Reserve Bank, under Paul Volcker, sharply increased American interest rates
to contain inflation in the late 1970s, previously abundant capital inflows to the region
dried up, and all governments faced extreme duress and a crisis that lasted for a decade.
Most military regimes collapsed, and presidents governing through the hard times that
followed suffered from low popularity and had a dismal record electing their successors.
In the early 1990s, in contrast, when international interest rates hit their lowest point
in recent history, capital flowed once again into Latin America in search for better re-
turns. Presidents in countries as varied as Peru, Argentina, and Brazil were credited with
ending inflation and popular satisfaction was such that, throughout the region, leaders
spearheaded constitutional changes to allow for immediate reelection, and were reelected.
Voters did not seem to discount the fact that international conditions beyond the pres-
idents control were very auspicious, neither that inflation was brought under control in
most countries at about the same time.
To some level, these narratives corroborate the standard accounts of economic voting,
which at least since Kramer (1971) and Fair (1978) have established a positive correlation
between economic performance and incumbent support. What they also suggest, however,
is that voters may not always recognize situations in which economic performance is
heavily affected by processes beyond the control of the government, even when this is
potentially observable, and somewhat predictable.
Early work on economic voting did not consider whether economic performance was
actually a consequence of governments competence. Only recently, driven mostly by
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interest in the political effects of globalization, authors have begun to focus on voters
behavior in a scenario in which performance results from factors beyond domestic policy-
making. Models generally assumebased on evidence mostly from European casesthat
voters can distinguish chance from merit and vote based on the latter. Arguably, this
capacity develops as citizens have access to information that allows them to benchmark
their countrys economic performance relative to others.
Our paper advances this literature both theoretically and empirically. Theoretically,
we argue that if, as standard models suggest, information about relative performance is
necessary for voters to distinguish merit from chance, we should not expect voters to
properly discount exogenous factors when such information is absent. We demonstrate
this true in an important class of countries, and therefore contribute to establishing the
scope conditions under which voters are actually able to correctly assign responsibility
for their governments management of the economy.
Empirically, instead of using measures of domestic performance relative to the world
economywhich raise important questions about the countries voters should (or do)
consider when benchmarkingwe develop a theoretically grounded indicator of the state
of the world economy as it affects our countries of interest. This construction allows for a
fairly simple and effective research design, through which we are able to show that both
popularity and prospects of reelection are largely determined by international factors
beyond presidents control.
Latin America is particularly suitable for this analysis; limited access to the media,
a tradition of inward-looking development, and comparably low levels of economic and
political internationalization limit citizens exposure to information about comparable
economies, and therefore their capacity to benchmark economic performance.
Countries in the region also share a longer democratic history than other emerg-
ing economies, and many institutional similaritiessuch as fixed presidential terms, and
concentration of power in the executive branchthat favor comparative analyses of the
impact of economic performance on incumbents political success.
Finally, and most importantly, not only Latin American economies are heavily de-
pendent on international factors, but in the case of the low-savings-commodity-exporting
countries of the regionmostly those in South Americathese factors are well known
and their effects have long been established in the Economics literature. Dependence on
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commodity exports and on capital inflows that are driven by international interest rates
explain why these economies do particularly well when commodity prices are high and
international interest rates are low, and suffer when the opposite occurs. Moreover, part
of Latin Americamostly Central America and Mexicohas a different mode of insertion
into the world economy, and as a result should not be affected by commodity prices and
interest rates in the same way as their South American neighbors. The contrast between
the two groups, which share a number of relevant institutional features but differ in their
types of exposure to the international economic scenario, permits the clear establishment
of the scope conditions of our argument.
Two features make this empirical setup theoretically interesting. First, although both
commodity prices and international interest rates are observable andto some extent
predictable, neither can be controlled by domestic governmentsi.e. they are unambigu-
ously exogenous to policymaking. Secondly, voters only feel the effects of these factors
indirectly, through their impact on the domestic economy. The combination of these two
features, as we explain in the research design section, allows for a decisive test of whether
voters discount exogenous factors when evaluating governments performance.
Our hypothesis is straightforward: in countries where commodity prices and interna-
tional interest rates have a strong and consistent impact on the economy and voters ignore
these effects, presidential success (i.e. popularity and probability of reelection) should be
largely predictable by these factors.
Data analysis supports our expectations; incumbents in the low-savings-commodity-
exporting countries of Latin America are more popular and have significantly higher
chances of being reelected or electing their candidates when interest rates are low and
commodity prices are high, and very unlikely to succeed when the opposite occurs. Voters,
in other words, punish presidents that rule during bad times and reward those leading in
good times.
This finding suggests that the opening anecdotes, far from being aberrations, reflect
the regular functioning of electoral accountability in an important class of countries. It
implies that in democracies in which economic performance is strongly influenced by
exogenous factors and voters are unaware of that, the link between electoral punish-
ment/reward and performance is broken. This link is at the heart of economic voting
theory, and its severance attenuates and might even eliminate the incentives for good
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economic policymaking that theorists predict. This conclusion is normatively consequen-
tial because it is exactly in countries where political systems are inchoate and citizens
less informed that economic voting is most needed to sustain democratic accountability.
Our paper is organized as follows. The next section discusses the relevant economic
voting literature, and indicates how our analysis contributes to its advancement. We
then introduce our research design and turn to the question of why and how commod-
ity prices and international interest rates determine economic performance in low-savings
commodity-exporting countries of Latin America, but not in other countries in the region.
In the subsequent two sections we examine the extent to which a positive international
economic outlook affects incumbent reelection and presidential popularity rates in the
two subsets of Latin American countries. We then present a brief analysis of the rela-
tive contributions of merit and chance to presidential success and conclude with an
interpretation of the results and a discussion of their normative implications.
Assigning Responsibility for Economic Performance
Voters capacity to evaluate and sanction elected politicians has been one of the central
topics in the Political Science literature. This debate is anchored on two radically different
views. The Michigan school, one the one hand, asserts voters lack of both knowledge
about political issues and coherent ideological structure (Campbell, Converse, Miller &
Stokes 1960, Converse 1969). The retrospective voting literature (John 1986, D. 1999,
Torsten, Roland & Tabellini 1997, Canes-Wrone, Herron & Shotts 2001), on the other,
posits that voters are capable of sanctioning and selecting the most competent and honest
leaders.
As Healy & Malhotra (2013) point out, recent research suggests real voters occupy
a middle ground where they sometimes, but not always, make mistakes. Moreover,
although the world is rife with opportunities for mistakes (citizens may fail when they
observe economic outcomes, assign responsibility for them, and decide to punish or reward
incumbents accordingly) these only matter as long as they distort the incentives for good
policymaking.
In this context, scholarly work has increasingly focused on establishing the condi-
tions under which voters can or not get it right (Healy & Malhotra 2013). There
has been considerable work on how institutional characteristics of political systems, such5
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as concurrent legislative and presidential elections (Samuels 2004, Johnson & Schwindt-
Bayer 2009), restrictive electoral rules (Benton 2005) and federalism (Cutler 2004) affect
voters capacity to attribute responsibility and hold politicians accountable. We, how-
ever, follow a different path and concentrate on establishing the conditions under which
voters can discount economic conditions that are not under the control of presidents.
As such, we join a strand of the economic voting literature that has explored voters
capacity to identify and, if so, discount exogenous components of countrys economic
performance. Alesina & Rosenthal (1995) offered a theoretical foundation for this analy-
sis by proposing a model in which economic growth is a function of a natural rate plus
unanticipated shocks that are caused either by incumbents competence or by an exoge-
nous element. In this model, voters can not directly identify the components of economic
shocks, but by observing the variance of these shocks over time they are able to establish
the level of responsibility for the economy that should be attributed to incumbents.
More recently, Duch & Stevenson (2008) proposed a modification to Alesina & Rosen-
thals (1995) model, which classifies decision-makers into electorally dependent (EDDs)
and non-electorally dependent (NEDDs). The first group includes elected officials, while
the second encompasses firms, interest groups, bureaucrats, foreign lenders, international
institutions, and any other non-elected actors whose decisions have an impact in the econ-
omy. In this framework, competency shocks are associated with the decisions of EDDs,
and exogenous shocks with those of anyone else.
The authors contend that voters who are attentive to global economic outcomes have
information that allows them to distinguish the variance in competency shocks from the
variance in exogenous shocks (Duch & Stevenson 2008, p.150). As a result, they should
not punish or reward governments for economic performance they are not responsible for.
Since the variance in exogenous shocks should be larger in countries in which NEDDs
make most of the relevant economic decisions, in these countries the competence signal
should be weaker, and so should the economic vote. Conversely, voters should be more
likely to punish/reward governments in economies in which EDDs make most of economic
decisions.
Duch & Stevenson (2008) find evidence that, in Europe, economic vote is less likely
to occur the less voters identify policymaking, vis-a`-vis other factors, as a determinant of
economic outcomes. These results find echo in Hellwig & Samuels (2007), who showed that
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greater exposure to trade and capital flows weakens economic voting in a large sample
of countries, and in Ebeid & Rodden (2005), who found that the connection between
macroeconomic performance and incumbent success is weak in U.S. states dominated by
natural resources and farming, but strong elsewhere in the country.
Kayser & Peress (2012) reinforce this interpretation; looking at a sample of mostly
European economies, they show that voters manage to distinguish the impact of ex-
ogenous factors relative to governments competence by benchmarking their countrys
performance relative to others through the media.
It is important to note, though, that the exposure of European citizens to information
about neighboring economies is probably not typical. The process of regional integration
in Europe is unique and has deep historical roots; economic interdependence has been
high for a longer period of time than in any other region, domestic markets have been
integrated for decades, citizens of the European Union move freely within its borders, and
Eurozone countries share a single currency and central bank. It is reasonable to argue
that Europeans capacity to benchmark across borders is probably higher than that of
citizens of mostif not allother regions in the world.
A more general understanding of voters capacity to distinguish merit from chance
in their assessment of governments performance, thus, demands an examination of citi-
zens behavior in contexts in which benchmarking is less likely to occur. This is of utmost
normative importance because it is exactly in these casescountries with less institution-
alized political systems, more recent democratic experience, less organized civil society
and lower levels of political education that in the OECDthat economic voting becomes
more relevant as a mechanism that assures some level of democratic accountability. In
contexts such as this, economic voting serves as a last line of defense of democratic
accountability (Stokes 2001), and without it, electoral democracy is no better than a
lottery when it comes to providing incentives for good governance (Przeworski 1999).
Our paper fills this gap in the literature by examining voters assessment of govern-
ments economic performance in Latin America. In contrast to Europe, most countries in
the region experienced inward-looking developing models during much of the 20th cen-
tury, and still display very limited levels of economic or political integration. Access to
information is generally low1 and, as a result of these two factors, citizens exposure to
1Average circulation of daily newspapers in the region is only about 54 per 1,000 people, com-pared to 289 in the United Kingdom, 267 in Germany, and 313 in the Netherlands (Total average
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news about other economies is sparse, at best. In such scenario voters are unlikely to
benchmark economic performance, and therefore should not be capable of distinguishing
merit from chance when assessing governments management of the economy.
We use a very simple research design to test this hypothesis, one that benefits from
the fact that some Latin American economies are heavily dependent on international
variables that are beyond presidents control and have been extensively researched in
the Economics literature. Instead of using a measure of domestic economic performance
relative to other countries as the main independent variable, as it was done in Kayser &
Peress (2012) and Leigh (2009), we develop a theoretically grounded indicator of the state
of the world economy as it affects our countries of interest. We use this indicator first to
predict presidential success (i.e. reelection rates and popularity) in the region, and later
to compute the relative impact of merit and chance in determining this success.
Because our indicator is unambiguously exogenous to presidential popularity and elec-
toral performance, we are able to make bold causal claims. Our reasoning starts with
the assumption that no other connection exists between the world economic conditions
and evaluation of presidents by domestic audiences except the one that goes through do-
mestic economic performance. If this assumption is reasonablewhich we argue below it
isthen any covariation observed between the international conditions and presidential
evaluation can be interpreted causally. The fact that such covariation is strong means
that chance is an important determinant of presidential success, and this can only happen
because citizens are failing to discount exogenous factors when they vote.
Research Design
In this paper we test the hypothesis that international factors that are beyond the control
of presidents, but that have a great deal of influence on domestic economies, largely
determine voters evaluations of presidents performance.
The rationale that underlies this claim is straightforward; if voters actually discounted
the state of the world economy in their assessments of incumbents performance, there
circulation per 1,000 inhabitants, UIS Data Centre and UNESCO Institute for Statistics, available athttp://data.un.org/). Internet usage in Latin American countries stands, on average, at 48% of thepopulation whereas in the European Union this figure is at 75%, and reaches 90% in some WesternEuropean countries (Internet users per 100 inhabitants, World Development Indicators, available athttp://databank.worldbank.org).
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should be no association between exogenous economic factors and presidential evalua-
tions.2 If, on the other hand, voters are unable or unwilling to discount chance, then
world conditions that strongly determine domestic economic performance should be di-
rectly related to voters assessment of governments. Hence, for our hypothesis to hold, it
suffices to show that the international economy has an effect on voters assessments.
Note that we neither contradict nor question standard economic voting theories that
make some form of the argument that domestic economic performance affects voters
judgement of incumbent governments. We simply add a prior step to the argument,
as described schematically in Figure 1. This addition, we argue later, has non-trivial
normative implications, but is consistent with the basic empirical fact that voters feel
and react to domestic performance, as the standard arguments suggest.
InternationalEconomy
Voters'Assessments
DomesticEconomic
Performance
Figure 1: Possible Effects of International Economy on Voter Assessments of Incumbents
Our hypothesis essentially states the existence of an indirect effect of the international
economy on voters assessments of the quality of the incumbent, that is mediated by
domestic economic performance. If the international economy were to have a direct effect
on voters assessments, we would need to block that path to estimate only the indirect
effects.3 However, we make the assumption that such a direct linkrepresented by the
2This is only true, of course, as long as the actual competence and performance of presidents isunrelated with the state of the world. We consider this association unlikely, and assume it does not exist.
3Borrowing the language from mediation analysis (for a formalized statement, see Imai, Keele, Tingley& Yamamoto 2011), the total effects of an exogenous independent variable on any given outcome can beparsed into direct and indirect effects, the latter of which are channeled through a mediating variable. Theindirect effects are estimated by combining the two components of the indirect path (i.e. the horizontaland vertical arrows). The direct effects (i.e. the diagonal arrow) are estimated by subtracting total effectsfrom the indirect effects.
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dashed diagonal arrowdoes not exist.4 In the absence of a direct effect, the indirect
effectswhich are of interestwill be equal to the total effects.
In most social science observational research, estimating such an effect is not trivial
because of potential endogeneity. However, in the present case we can confidently state
that our explanatory variables are exogenous to the outcome to be explained, which allows
us to make bolder than usual causal inferences.
An important implication of the preceding discussion is that a test of our hypothesis
precludes controlling for the effect of domestic factors on voters assessments.5 This same
conclusion also follows directly from notions of research design that are well understood
and accepted in several branches of academic literature, and formulated as maxims such
as we should never control for the mediating variable when estimating the total effects,
we should not control for some consequence of a treatment when estimating treatment
effects, and we should not control for a variable that is in the causal pathway of the
outcome of interest (Rubin 2005).
In summary, our main empirical task is simply to determine whether exogenous inter-
national economic variables, which strongly influence domestic economic outcomes, have
an effect on presidents chances of reelection and popularity. A positive findingsuch a
the one we reportimplies that voters are rewarding presidents for factors beyond their
control (i.e. chance). At the end of the paper, we also present a separate analysis of
the role of domestic variables in explaining the variation in presidents popularity that
can not be accounted for by international factors. As expected, the explanatory power of
domestic variables proves quite limited in comparison.
Before proceeding, we discuss which are the international economic variables that
matter, and establish the scope conditions of the argument by determining the countries
in which these variables are relevant.
4A simple test of the mediation pathreported in the web-appendixsubstantiates this assumption,by suggesting that close to 90% of the total effects in our system are actually mediated by GDP. Resultsare presented in the web-appendix but we do not want to overplay them because GDP is simply one ofmany possible indicators for domestic economic performance that can act as a mediator.
5We would only control for the domestic economy if we were interested in identifying the direct effects.In a slightly different formulation, if we were interested in estimating the effect of domestic economicperformance on voters assessments, we would need to condition on (control for) international economicfactors. See Morgan & Winship (2007, p. 77). However, we should not condition on domestic economicperformance if estimating the effects of international economic factors on voters assessments.
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Exogenous Determinants of Economic Performance
The importance of commodity prices for Latin American economies has been at the
center of economic thinking about the region for decades. Dependency theorists were
primarily concerned with the (then seemingly secular) declining terms of trade, for which
the natural remedy were inward growth policies that reduced countries exposure to the
unequal exchange conditions facing commodity exporters (Prebisch 1949, Singer 1950).
Even non-dependencistas, however, shared the perception that international flows of trade
and investment were key to countries economic performance. Malan & Bonelli (1977), for
instance, argued that the Brazilian economic miracle of the early 1970s had depended
heavily on an exceptional and elusively temporary international situation (p. 21) that
had been channeled through two dimensions, one related to commodity trade and the
other to net inflows of foreign capital (p. 24).6
It has also been established that the economic performance of low-savings economies
depend on inflows of capital for investing and growing. These capital flows are mostly
driven by international interest rates that are, for all practical purposes, set by the U.S.
Federal Reserve System. When U.S. interest rates are low, international liquidity in-
creases, and capital is more likely to flow to emerging economies in search of better
returns. Higher rates, conversely, prompt international capital to flee to safer havens
(Calvo, Leiderman & Reinhart 1996, Santiso 2003).
Not surprisingly, the Economics literature has shown that Latin American countries
many of them commodity exporters and low-savings economiesdo exceptionally well
when international interest rates are low and commodity prices are high, and are hurt
when the opposite happens (Maxfield 1998, Gavin, Hausmann & Leiderman 1995). Izquierdo,
Romero & Talvo (2008), in particular, show that both capital flows and economic growth
in Latin Americas largest economies are fundamentally determined by changes in the
international interest rates and in commodity prices.
In order to capture the conditions of the world economy for Latin American countries,
thus, we created a Good Economic Times index (henceforth GET) that combines com-
modity prices and U.S. interest rates into a one-dimensional summary measure.7 GET
6At the time such flows were eminently for foreign direct investment, but since then, portfolio flowshave increased considerably and become much more relevant to countries balance of payments, particu-larly in the short term.
7GET was produced by performing a principal components decomposition of the U.S. 10 Year Trea-
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is measured in a unit-less normalized scale, but it has the intuitive property that higher
values represent good times and lower values represent bad times for economies in
the region.
Although there is some loss in combining the two variables into a single index, our
decision is justified theoretically by the fact that we are more interested in capturing the
international scenariorepresented by the combination of both variablesthan in the
effects of commodity prices or international interest rates per se. Results using the two
separate variables are all but substantively identical to what obtains with GET alone,
and are reported in the web-appendix.
Figure 2 describes the behavior of the GET index and its constituent indicators over
the past 30 years. In this period, the index varied from -1.7 in 1982 to just over 3 in
2011. This figure is a particularly cogent summary of the economic conditions facing
Latin American economies. The increase in U.S. interest rates in 1979 precipitated the
debt crisis that ravaged the region. It combined with extremely low commodity prices to
produce a lost decade. During the 1990s, lower U.S. interests rates prompted a boom
of private capital inflows that allowed for the implementation of stabilization plans that
put an end to hyper-inflation in most countries in the region. In the 2000s, very low
interest rates prompted by slower growth in the US combined with sky-high commodity
prices to fuel a period of unprecedented wealth creation.
The capacity of the GET index to track shifts in the economic outlook is not restricted
to long-term trends. The index is also sensitive enough to capture relatively smaller
shifts in economic conditions, such as the Russian and Asian crises of the late 1990s. It
also shows that the great recession was no more than a hiccup in the region, which
was shielded from the crisis by sky-high commodity prices and a further decrease in US
interest rates.
At this point, it is worth noting that commodity prices and international interest
rates are not equally important for all Latin American economies, which provides us with
some additional leverage to test our argument. Their effects are contingent on countries
development models and modes of insertion into the world economythey increase with
each economys dependence on commodity exports and on international inflows of private
capital. The higher this dependence, the larger the effect of GET on domestic economic
sury Constant Maturity Rateprovided by the Federal Research Bank of Saint Louis (FRED)andUNCTADs aggregate free market commodity prices index.
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1980 1985 1990 1995 2000 2005 2010
46
810
1214
% (N
omina
l Rate
s)
100
150
200
250
300
Inde
x Po
ints
(ye
ar
2000
=100
)
US Int. RatesCommodities
GET Index
Figure 2: Good Economic Times Index (GET) and Its Constituent Components
Figure shows the evolution of GET and its two constituent components (U.S. Interest Rates expressedin percentages and Commodity Price Index expressed in index points) over three periods of interestthat correspond roughly the 1980s, 1990s and 2000s, and which are discussed in more detail in the nextsection.
performance is. Because we hypothesize that voters do not discount exogenous factors,
we expect to find that where GET affects the economy, it also affects presidential perfor-
mance. Conversely, in countries where GET does not affect the economy, we expect to
find no effects on presidential performance.
Our next step is, thus, to empirically determine the countries that fit the scope con-
ditions of our argument. To do so, we estimate the impact of GET on GDP in 18 Latin
American countries. The dependent variable, GDP, was measured in constant local cur-
rency to account for widely different monetary policies employed across countries and
over time,8 and transformed into an index in which the value of the GDP of each country
in 1980 corresponds to 100. We dealt with the time structure by including the lag of the
8Using current U.S. dollars, for instance, tends to misrepresent GDP performance of countries thathave high inflation.
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dependent variable.9
Table 1 ranks countries by the extent to which their economic performance is deter-
mined by the GET index and, as such, summarizes the scope conditions of our argument.
The analysis indicates that the region as a whole is strongly influenced by the two vari-
ables; the GET coefficient for the combined economic performance of Latin America is
highly significant and goes a long way towards explaining its variation over time.10
GETs coefficient is positive for all Latin American countries in the sample, indicating
that in all cases the economy tends to do better when commodity prices and U.S. interest
rates are favorable. The contrast with the U.S. further underscores this general point.
As an advanced industrial country, the USs relationship with the world economy is
completely different than that of Latin American countries; this is evidenced by the fact
that it is the only country in the table in which the impact of GET is negative.
The GET index, however, does not predict all countries economic performance equally
well. Mexico and most Central-American countries appear in the bottom of the ta-
ble, and the coefficient is never statistically significant for any of them. These results
reflect the increasing divide between commodity-oriented economies in the South and
labor-intensive manufacturing and remittance-dependent economies in Central and North
America. Based on the table, we refer to the two groups as determined and non-
determined.11
Here, it is important to reaffirm that we are not claiming that the economy in countries
in the bottom of the table do not depend on any international conditions. Our argument
is simply that they do not depend on commodity prices and U.S. interest rates in the same
way as countries in the top of the table. In principle, it should be possible to construct
equivalent GET indices for other groups of countries, according to how they are inserted
into the global economy. We leave this exercise for future research.
9Estimates in the table were obtained from regressions estimated separately for each country. Resultsobtained using both constituent components of GET separately, instead of the index, are very similarand are reported in the web-appendix. Graphical analysis of the residuals of these regressions reveal thatthe series are stationary, and show no signs of higher order autoregressive or moving average processes.Diagnostics are available from the authors.
10Latin American GDP is measured in constant U.S. Dollars instead of constant local currency, andas such, does not account well for differing inflation rates in different countries. Its value is, therefore,not directly comparable to the coefficient for each country.
11In 2011, the last year for which data are available for all countries considered, only 26% of Mexicantotal exports were commodities. In contrast, this figure was 57% in Brazil. The average for countries inthe determined sample was 70%, compared to 22% for countries in the not-determined sample. Figureswere computed from World Bank Development Indicators, see web-appendix for details.
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Table 1: Good Economic Times Index and GDP (19802011)
Coefficient onGET
p-value
Latin America 35.34 0.005 Argentina 9.77
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not be associated with fluctuations of the GET index. This is what we test in the next
two sections.
International Scenario and Presidential Elections
In countries where economic performance is strongly determined by commodity prices
and international interest rates, we expect to observe a high incidence of presidential
reelections in good times (i.e. when GET is high, reflecting high commodity prices and
low international interest rates), and a low incidence of reelections when the opposite
happens. We expect to see no such relationship in the countries whose economy is not
determined by GET.
For this analysis we identified a total of 121 presidential elections in 18 Latin American
countries since 1980, of which 107 were deemed free of electoral process and/or franchise
violations (Mainwaring, Brinks & Perez Linan 2010). Of these, 33 elections were held in
the 6 countries in the non-determined sample, and 73 elections in the 12 countries in
the determined sample.12
We coded each of these elections as a reelection if the candidate supported by the
(elected or the facto) incumbent government won the election.13 In most cases, this
means that either the incumbent president or a candidate of the presidents party won
the election, but some less straightforward situations are discussed in the web-appendix.
Figure 3 shows reelection rates in the two sub-samples of countries, by decade.14 Recall
that GET (see Figure 2, above) was substantially lower in the first decade (reflecting high
U.S. interest rates and low commodity prices) than in the last decade (reflecting low U.S.
interest rates and high commodity prices). Figure 3 shows that reelection rates increased
markedly from 22.2% in the worse period, to 60% in the best period in the determined
countries, but did not follow any noticeable trend and remained close to 40% in the
12There are actually 74 elections in the determined sample in the period. However, one election(Guatemala 2012) is coded as missing on the reelection variable due to particularities of the case, and isnot included in the analysis. See web-appendix for details.
13We chose not to focus on the vote-share obtained by the incumbent supported candidate because inmany cases in which prospects were feeble the incumbent did not support any candidate. Our definitionof reelection simplifies the treatment of these cases as they become simply another case of failure to electa successor.
14Although we refer to the three periods as the 1980s, 1990s and 2000s, we partitioned our data sothat we would have a similar number of elections in each period. As such, the 1980s cover 19821994,the 1990s cover 19942004, and the 2000s cover 20052012.
16
-
countries whose economies are not determined by GET.
Determined Not Determined
0.0
0.2
0.4
0.6
0.8
Ree
lect
ion
Rat
es1980s1990s2000s
Figure 3: Reelection Rates in Determined and Not Determined Economies
Figure shows that reelection rates increased by decade in countries whose economies are determined(by GET), but remained roughly stable in countries whose economies are not determined. Se text fordefinitions.
In order to further assess the relationship between international factors and presiden-
tial reelection in the region, we ran a logit analysis of the effects of the average value
of GET in the twelve months prior to the election date on the probability of reelection,
estimated separately for the determined and non-determined economies in Latin America.
We fit several versions of the basic model that vary simply on the approach to the hier-
archical structure in our data, and with regards to the inclusion of controls for whether
the incumbent was a candidate and for the ideology of government. Both account for
alternative explanations of reelection and deserve some attention.15
15We considered a third alternative explanation, namely that some governments (especially later inthe period) might be simply more competent than others. We do not object to this idea in principle,but unless there exists a backdoor path linking the state of the world economy and the competence ofgovernments, there is no need to include such a variable in the analysis. We believe that competence
17
-
It is widely known that incumbent presidents running for reelection in Latin America
rarely lose an election.16 Several countries in the region have shifted from barring to
allowing immediate reelection, so it is plausible that the association between GET and
reelections could be driven, in part, by this change in rules. For this reason, Model 4
includes a dummy indicator of whether the president was herself a candidate. We are not
particularly worried about endogeneity in this case (i.e. that presidents that are likely to
lose decide not to contest elections) because almost all presidents that could have ran for
office did so.17 Still, in the web-appendix we discuss alternative indicators and present
additional specifications that fully corroborate the results reported here.
The inclusion of ideology as a control is justified by the fact that Latin American
countries have extremely high levels of income inequality, and redistributive policies have
a significant effect on the well-being of the poor who amount to a large share of the pop-
ulation. Governments that engage in redistribution should, therefore, enjoy an electoral
advantage, over-performing relative to what would be predicted by the world economy.
If redistribution were completely unrelated to international economic conditions, it
would not be necessary to control for it, as it would not interfere in the relationship be-
tween GET and probability of reelection (Morgan & Winship 2007). But, if the possibility
of electing a more redistributive government is affected by world economic conditions, it
needs to be accounted for. Consider there is a disproportionate probability that pro-
redistribution incumbents are reelected in good economic times; if this is true, there
would be a second path in Figure 1 linking international conditions to voters assess-
ments passing not through the domestic economic performance, but through the level of
redistribution.
Because GET is exogenous to policymaking, if we simply ignored the hypothetical
association between redistributive policies and GET, our estimates of total effects would
capture both alternative paths (i.e. through the domestic economy and through redistri-
bution). This omission, it should be stressed, would not affect our estimates of the total
effects, and therefore would not affect the test of our basic hypothesis. Nonetheless, we
believe that this redistribution path has theoretical implications that are distinct from
is unrelated to GET, and therefore need not be accounted for. In the web-appendix we report resultscontrolling for and indicator of competence. As expected, substantive results do not change substantively.
16The only such case was Daniela Ortega, in Nicaragua, in 1990.17The two deviating presidentsboth from Argentinachose to not ran for opposite reasons: Eduardo
Duhalde in 2003 governed in the midst of political and economic chaos, but Nestor Kirchner in 2007 wasso popular he easily elected his hand-picked successor.
18
-
our basic argument. In an effort to rule it out, we present a model specification in which
we include an indicator of the ideology of the president as an (indirect) measure of her
propensity to redistribute. For this variable, we build on Campello (2014), and code all
governments in our sample as either left or right-wing (0 or 1, respectively).
Table 2 reports the different model specifications for the two sub-groups of countries.
Results are consistent with our expectations, despite the relatively small sample sizes.
In all specifications GET always has a positive effect on the probability of reelections in
the determined sample, but never in the sample of countries whose economies are not
determined by commodity prices and U.S. interest rates.18
Table 2: Predicting Incumbent Candidate Reelection (19802012)Determined Not Determined
Mod. 1 Mod. 2 Mod. 3 Mod. 4 Mod. 5 Mod. 6 Mod. 7Cl. SE FE RE Cl. SE Cl. SE Cl. SE FE
GET Index 1.006 1.217 1.055 0.853 1.000 0.144 0.116(Std. Error) (0.296) (0.410) (0.337) (0.295) (0.306) (0.210) (0.383)p-value 0.001 0.003 0.002 0.004 0.001 0.494 0.763Incumbent Ran 3.094
(1.246)0.013
Ideology -0.037(0.583)
0.949(Intercept) -0.810 0.045 -0.858 -1.198 -0.780 -0.602 -0.507
(0.332) (0.871) (0.340) (0.389) (0.546) (0.396) (0.731)0.015 0.959 0.012 0.002 0.153 0.128 0.489
Baseline Error 0.370 0.370 0.370 0.370 0.370 0.364 0.364Model Error 0.315 0.288 0.260 0.233 0.315 0.364 0.303Prop. Red. in Error 0.148 0.222 0.296 0.370 0.148 0 0.167Countries 12 12 12 12 12 6 6N 73 73 73 73 73 33 33
Coefficients are logit estimates. Standard errors are shown in parenthesis and p-values in italics. Tableheader indicates whether clustered standard errors, fixed effects, or random effects (intercepts) were usedto account for the hierarchical nature of the data.The dependent variable is a binary indicator of whetherthe incumbent supported candidate was reelected. GET Index was operationalized as the average valueof the index in the 12 months prior to each election.
Among the three simplest specifications, the random effects model (Mod. 3) performs
slightly better in terms of fit, but also makes more taxing assumptions than fixed-effects
18Results shown in the web-appendix reveal that commodity prices have a positive effect and U.S.interest rates have a negative effect on the probability of reelection, and are always jointly signifiant inthe determined sample but never in the non-determined one.
19
-
models or the OLS model with standard error clustered by country, especially given the
relatively small number of elections per country.
Model 4 corroborates the notion that presidents running for office are far more likely
to win than president-supported candidates, but the effect of GET is only a little smaller
than in the previous models. Model 5 shows that the coefficient on GET is only slightly
smaller than the simpler specifications when the dichotomous indicator for right-wing
ideology is included. The coefficient on the indicator itself is not significant, though its
sign suggests that presidents from leftists parties might perform better (on average) than
those on the right.
Despite these variations, the main message is that GET has a statistically signifi-
cant and very stable effect across all specifications in the elections held in determined
economies. The magnitude of these effects are clearer in Figure 4, which shows the
changes in probability of reelection as the international economic outlook shifts from
bad to good, defined as a move from one standard deviation below to one standard
deviation above the mean value of GET over the entire period.
In the determined sample, these substantive effects range from 0.38 in the model
that controls for personal reelection, to 0.45 in the model with country fixed-effects.
In contrast, effects in the not-determined sample are never larger than 0.07 and not
statistically significant. These results reveal that the extremely favorable international
economic scenario observed in the 2000s goes a long way towards explaining the change
in the probabilities of reelection of incumbents in South America.19
Yet, even though these are strong results, we acknowledge that presidential elections
are relatively rare events, which can be determined by many factors beyond the state of
the economy. Formal models of electoral accountablility, for instance, highlight the fact
that retrospective evaluations of incumbents are simply the basis through which voters
make prospective evaluations of candidates. Voting decisions, in this view, are based
on the comparison of the prospects offered by all the candidates, and not simply on a
retrospective evaluations of incumbents (Ashworth 2012).
The Chilean case illustrates these perils very well: our model predicts a slow and
steady increase in the probability of reelection in the country over time. Governments in
Chile were reelected three times throughout the nineties when our model predicted some-
19In the web-appendix we also show that differences between the effects of GET in the two samplesare significant for substantial range of the possible values of the GET index.
20
-
0.5 0.0 0.5 1.0
Not
Det
erm
ined
Det
erm
ined
Change in Probability of Reelection
Mod. 7
Mod. 6
Mod. 5
Mod. 4
Mod. 3
Mod. 2
Mod. 1 l
l
l
l
l
l
l
Figure 4: Effects of Change in GET (from Bad to Good) on Reelection
Figure shows the change in probability of reelection associated with moving from a bad internationaleconomy to a good international economy (i.e. from one standard deviation below to one above themean of the GET index). First differences were computed from models presented in Table 2, and thecomposition of the determined and not determined groups is presented in Table 1.
what lower probabilities of reelection, and failed to elect a successor in the 2000s, when
our model predicted a higher probability of reelection. Notwithstanding, all elections in
Chile, particularly the last two, were very close, and very likely determined on the mar-
gin, by less structural issues than those discussed here. Moreover, Michelle Bachelet, the
incumbent president who failed to reelect her successor, left office with approval ratings
above 80%. As such, the ultimate test of our argument should not rely on reelection
rates, but rather on a more direct indicator of voters assessment of presidents, which we
now turn to.
21
-
International Factors and Presidential Popularity
In order to further test the relationship between international factors and presidential
success, we examine monthly presidential popularity and approval rates in Brazil and
Mexico, and determine the extent to which they can be predicted by fluctuations in the
GET index.
Recall that Brazil appears in the upper portion of Table 1, and as such is clearly within
the scope of our argument. Mexico, on the other hand, is the Latin American country
least dependent on commodity exports. Because of its intimate ties to the U.S. consumer
market, financial capital is more prone to flow to Mexico during good times in the U.S.,
when interest rates are in an upward trend reflecting a heated economy. In short, GET
captures international economic conditions favorable to low-savings-commodity-exporting
countries, but not to Mexico, which does not fit this description. It follows that GET
should have no effect on the popularity of Mexican presidents.
In order to empirically assess our hypothesis, we collected as much data on popular
evaluation of the presidents as we could find. For Brazil, we obtained 375 observations,
taken by four polling firms, and spanning the period between March 1987 and December
2012. All firms used very similarly worded questions.20
For Mexico, we collected a total of 578 observations of the popularity of presidents
since the late 1980s taken by three different pollsters.21 We encountered three basic
types of questions assessing presidents performance, and we chose the question with the
greatest availability over the time-span. However, as the question is different than the
one used in Brazil, popularity rates should not be compared directly across countries.
In both cases we used only nationally representative surveys, or at least surveys that
covered the major metropolitan areas. In Brazil all surveys were face-to-face, but in Mex-
ico we resorted to phone-based surveys in some months when no face-to-face survey was
available. The web-appendix reports the question wordings, and additional information
20All these observations are publicly available. Just over 70% of all our observations were compiledand made available by journalist Fernando Rodrigues (noticias.uol.com.br/politica/pesquisas/), but ourdata set expands the number of observations by using several other sources. Three data points exist forthe period between 1985 and 1987, but they are too sparse to used reliably and were dropped. At thetime of writing, data already existed for 2013, but some covariates were not available beyond december2012.
21Most of the data we obtained were from the CIDE/BIIACS repository http://biiacs-dspace.cide.edu,but we also compiled data from other sources, such as from Consulta Mitofsky websitehttp://consulta.mx/web/.
22
-
020
4060
8010
0
CardosoCollor DilmaFranco LulaSarney
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
R2= 0.62
Popu
larit
y
ActualPredictedR2=0.62
(a) Brazil
020
4060
8010
0
CaldernFox NietoSalinas Zedillo
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
R2= 0.12
Popu
larit
y
ActualPredictedR2=0.12
(b) Mexico
Figure 5: Predicted and Actual Popularity of Presidents in Brazil and Mexico
Figures show actual popularity of Brazilian and Mexican presidents as well as the predicted popular-ity based on the simplest possible OLS model including only the GET Index as a predictor. Shadedbackgrounds represent the different presidencies, and presidents names appear at along the top.
about the data.
We converted the raw observationsoriginally produced at irregular intervalsinto
monthly observations by averaging multiple observations per calendar month. This led us
to 222 monthly observations spanning 310 months in Brazil and 240 observations spanning
287 months in Mexico. We imputed the missing monthly observations (88 in Brazil and
47 in Mexico) using Amelia II (Honaker, King & Blackwell 2011), which allowed us to
make use of lead and lag values.22 All independent variables were fully observed on a
monthly basis.
As a first approach to these data, Figure 5 shows the actual popularity of presidents
and what is predicted by a simple OLS model including only the GET index. It is
immediately obvious that GET and popularity covary strongly in Brazil (R2 = 0.63) but
very weakly in Mexico (R2 = 0.12).
It is worth noting that, in the case of Brazil, a model including several domestic
22We worked with five imputed sets in the analysis. All results presented combine the analysis in thefive sets and correct standard errors accordingly. Details of the imputation process as well as resultswithout imputation are provided in the web-appendix.
23
-
economic variables (i.e. average income index, GDP, inflation in the preceding six months,
and unemployment) yields an R2 of 0.64. The fact that a model relying on only two
international economic variables can predict popularity almost as well as a model with
several domestic economic variables is striking. For the sake of comparison, a similar
domestic model in Mexico performs much better than the GET model (R2 = 0.5).23
While these figures illustrate the relationship between GET and popularity, they do
not take into consideration the time structure in the data. In this respect, diagnostics
show that both the Mexican and Brazilian series are stationary but that serial autocor-
relation is present.
We dealt with the serial correlation initially through the use of lag dependent variable
models (lagDV).24 However, in the Mexican case residual serial autocorrelation remained
in the lagDV models. One alternative would be to correct for the residual structure in
the data by fitting and lagDV model with AR-1 errors, but this would require the use of
instrumental variables (Baltagi 2011, p.140), which would make the analysis much more
opaque. Detailed analysis of the residual autocorrelation in the Mexican case suggested
it followed an ARMA(1,1) process, which turned out to be the most parsimonious model
to generate white noise residuals.
Table 3 reports time series estimates for the impact of GET on popularity for Brazil
and Mexico. The main results are the positive and significant coefficient on GET in
the case of Brazil, and the null result for Mexico.25 In short, GET has an important
impact in predicting fluctuations in presidents popularity in an economy that is strongly
determined by U.S. interest rates and commodity prices. Conversely, in a country where
the economy is not determined by these two external variables GET has no impact on
23Visual inspection of the data suggests that is at least some room for deviation from the internationaldeterminants. Cardoso probably reaped the rewards of currency stabilization, as Lula of his redistributivepolicies. Though both stabilization and redistribution were at least partially made possible by a benigneconomic outlook, in both moments presidents were able to make the most of good economic times.Domestic crisis, such as the energy shortages of Cardosos second term and corruption scandals duringLulas first term, also seemed to have taken a toll on presidents popularity. However, we leave explorationof these and other interesting nuances in the data for future research.
24The lagDV model is a restricted version of the autoregressive distributed lag (ADL) model, whichincludes only lags of the dependent variable (and not of the independent variables). It is theoreticallywell suited for the present analysis because presidential approval today is a function of past presidentialapproval as modified by new information on the performance of the economy (Keele & Kelly 2006).
25See the web-appendix for additional time-series specifications for Brazil, all of which confirm thisresult. We also show that the effect of GET in Brazil disappears if we control for the domestic econ-omy, which is entirely consistent with the assumption that voters do not directly observe and considerinternational variables.
24
-
Table 3: Time Series Analysis for the Effect of GET on Popularity
Mod. 7 Mod. 8Brazil Mexico
GET Index 1.76 -2.65(Std. Error) (0.56) (2.68)p-value
-
presidential popularity.
The substantive impacts of GET on popularity can be better grasped by observing
the impulse and unit response functions, reported in Figure 6 as derived from Model 7.26
The impulse response function is the change in popularity if a positive unit shock in
GET were observed in a single period followed by a return to the original pre-shock level.
In our substantive case, this scenario is theoretically unlikely, but the figure shows that
such a shock would produce an immediate increase in popularity of 1.76 (the coefficient
on GET in Model 7), and that this effects would slowly wane and popularity would return
to its original levels.
The unit response function is more substantively interesting, as it reflects the change
in popularity that is observed when there is a permanent increase of one unit in GET.
The effects of such an increase begin as an increase in presidential popularity of 1.76
percentage points, and rise at a declining rate, over time. After 12 months, popularity
would be just about 11 percentage points higher, and this effect would eventually converge
to 13.8.27
26See Greene (2003, p.560) for a characterization of these functions as the analogue to marginal effectsin cross-sectional analysis.
27The equilibrium levels of popularity are given by the expression 01 , where 0 is the coefficient onGET and is the coefficient on lagged popularity.
26
-
2 4 6 8 10 12
02
46
810
Months
Po
pula
rity
Unit Response
Impulse Response
Figure 6: Response Functions of GET on Popularity of Brazilian Presidents
Figure shows impulse and unit response functions over the course of an year of a change in GET occurringat month 1, over the course of one year. See text for details.
Merit vs. Chance
Because the GET index is clearly exogenous to policymaking, the results in the preceding
sections are evidence that citizens in the determined sample are voting economically and
mis-attributing the effects of exogenous shocks to competence. Neither of these behaviors
would be expected by the predictions of mainstream economic voting theory, and together
suggest that voters are unable to discount world conditions when making their assessments
of incumbents.
Still, a secondary question refers to the relative size of competence shocks vis-
a`-vis exogenous shocks in determining presidential success. This question cannot be
answered directly through an either or type of analysis, as the structure of our argument
implies that GET affects domestic performance, which in turn affects how voters behave.
We cannot, therefore, directly include an indicator of domestic performance in the same
regression as the GET index because, as previously explained, this would amount to
controlling for a consequence of our exogenous independent variable.
One alternative proposed by Leigh (2009) is to compute the extent to which each
27
-
countrys actual performance deviated from what the exogenous variable would predict.
In practice, this amounts to simply computing the residuals of the regression we reported
in Table 1.28 Positive(negative) residuals are indicators of better(worse) than predicted
performance, and are treated as a direct measure of competence, which can be pitted
against the chance component represented by the exogenous GET variable.
Table 4: GET Index, Merit and Presidential Reelection (Determined Countries Only)
Mod. 9 Mod. 10 Mod. 11 Mod. 12 Mod. 13Cl. SE FE RE Cl. SE Cl. SE
GET Index 1.005 1.223 1.054 0.849 1.000(Std. Error) (0.304) (0.416) (0.338) (0.303) (0.308)p-value 0.001 0.003 0.002 0.005 0.001Merit 0.002 0.027 0.007 -0.059 0.001
(0.060) (0.056) (0.047) (0.059) (0.060)0.977 0.627 0.879 0.317 0.983
Incumbent Ran 3.394(1.453)
0.019Ideology -0.034
(0.578)0.953
(Intercept) -0.810 0.051 -0.859 -1.241 -0.783(0.330) (0.874) (0.342) (0.395) (0.491)
0.014 0.954 0.012 0.002 0.111Baseline Error 0.370 0.370 0.370 0.370 0.370Model Error 0.315 0.247 0.260 0.247 0.301Prop. Red. in Error 0.148 0.333 0.296 0.333 0.185Countries 12 12 12 12 12N 73 73 73 73 73
Coefficients are logit estimates. Standard errors are shown in parenthesis and p-values in italics. Tableheader indicates whether clustered standard errors, fixed effects, or random effects (intercepts) wereused to account for the hierarchical nature of the data. The dependent variable is a binary indicator ofwhether the incumbent supported candidate was reelected. GET Index and Merit were operationalizedas the average values over the 12 months prior to each election.
Table 4 reports the same cross-sectional specifications for the determined sample pre-
viously reported in Table 2, but now includes the above mentioned operationalization of
28These residuals were estimated on yearly observations. For symmetry with our other indicators wecomputed the average value of competence over the year prior to each election. We also computed analternative specification of those regressions where GDP was regressed on GET. Results obtained aresubstantively identical, and reported in the web-appendix.
28
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merit as well chance, represented by GET. The coefficients on GET remain in the
vicinity of 1, retain high levels of statistical significance, and imply an increase of at least
0.34 in the probability of victory of the incumbent supported candidate as GET moves
from bad to good, as previously defined. Merit, on the other hand, has essentially
no effect.
We also adapted this procedure to the time series analysis for Brazil, regressing GDP
data on the GET index and lagged GDP, and treating the residuals as the measure of
competence.29 We then re-estimated Model 7, which was reported originally in Table
3, with the inclusion of the indicator. Results confirm that the effect of GET remains
all but unaltered, and that merit has negligible effects. The coefficient is statistically
indistinguishable from zero (0.11, SE=0.55, p-value=0.84) while the coefficient on GET
is 2.03 (SE=0.61, p-value
-
bution of this paper is to show that this is as true for systematic, observable, and
somewhat predictable factorssuch as the influence of the world economy on the do-
mestic economyas it is has been shown to be for shark attacks and droughts (Achen &
Bartels 2006) and randomly determined events in experimental settings (Huber, Hill &
Lenz 2012).
These findings have important implications for the study of democracy. As summa-
rized by Ashworth (2012), the building blocks of electoral accountability are an electorate
that decides whether or not to retain an incumbent potentially on the basis of her per-
formance, and an incumbent who has the opportunity to anticipate voters reactions and
act accordingly (p. 184). Our results cast a shadow on both of these pillars.
First, the attentiveness to global outcomes that is required to induce government
responsiveness might be very demanding. Even if citizens are aware of how well the econ-
omy is doing they might find it difficult to benchmark their countrys performance, and
therefore to correctly attribute responsibility for it. As voters do not extract meaningful
information from past performance, they are likely to reward incompetent incumbents
in booming times, and to punish competent ones simply because their happened to lead
during an unfavorable economic scenario.
Perhaps even more importantly, in such an environment incumbents behavior will also
be shaped by the knowledge that voters evaluations will not depend, to a large extent, on
policymaking. Although we leave the development of the full strategic interaction between
voters and incumbents to future work, it is possible to state that when the connection be-
tween electoral success and good policymaking is broken, the incentives for incumbents
to promote the best possible economic performance should diminish. Whereas rulers in
good times might find they can extract rents from office and still be reelected, incum-
bents that find themselves doomed by the international scenario might prefer spending
their efforts obtaining rents from office instead of attempting to marginally improve the
state of a failing economy.31 Examples from South America in support of both situations
abound.
Our findings also fundamentally challenge the established notion of accountability ex-
post (Stokes 2001), according to which the frequent breaking of electoral promises does
not affect democratic accountability. This claim relies on the assumption that voters
31See Przeworski (1999) for a simple formalized theoretical depiction of similar incentives.
30
-
ultimate concern is with their material conditions, and that the fact that they can reward
or punish incumbents depending on the material impact of their policy choices guarantees
accountability. Accountability ex-post hinges on the capacity of voters to link policies
to performance; if economic performance is mostly determined exogenously and voters
overlook that, the ex-post logic does not hold.
Here, an analogy with a firm helps grasp the implications of our results. Imagine
that shareholders have to decide how much to reward the CEO of an oil company, in
a scenario in which they cannot observe her actions directly, but only the companys
performance (Bertrand & Mullainathan 2001). In this context, shareholders want to
devise a payment scheme that will attempt to make sure the executive acts in their best
interest. Considering that oil prices are not determined by the CEOs decisions, should
shareholders simply punish a CEO that ruled under declining oil prices, and consequently
lower profit, and reward one that presided over rising oil prices? Most analysts would
agree that simply tying payment to performance of the firm is not the best solution. In
fact, the optimal mechanism to incentivize executives to perform is to discount exogenous
factors, as accurately as possible, and to evaluate CEOs strictly based on their own
contribution to firms performance. This turns out to be a hard problem, even for a
highly qualified and informed board.
Another potential dangerous consequence of voters inability to discount chance is well
illustrated by the opening anecdote about Andres Perez. Failure to consider the differing
world economic conditions that prevailed in his two presidencies led to profound disap-
pointment and to violent response by Venezuelans, both major steps in the dissolution of
a half-a-century-old party system that plunged the country into decades of turmoil.
Much work is still needed to understand the full implications of our results. Do
incumbents facing a threatening international environment attempt to inform votes about
the state of the world economy? How does the opposition behave? Do voters change their
opinions about the president if presented with information that allows them to benchmark
economic performance? Can counter-cyclical economic policies break the transmission
mechanism and reduce the effect of international factors? Irrespective of the answers we
eventually encounter, the main finding in this paper should prompt democracy enthusiasts
to engage in some soul-searching.
31
-
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Merit, Chance, and the International Determinants of
Government Success
Web-AppendixThis document presents materials that are not intended for print publication, but which
will be of interest to some readers. It includes the following sections:
A Alternative Approach to Determined Economies (using GETs constituent parts)
B Notes on Dependence on Commodities
C Coding of Presidential Reelection
D Extended Results for Presidential Reelection
E Notes on Popularity Data (question wording, imputation)
F Extended Results for Presidential Popularity
G Extended Results for Merit v. Luck
1 (Web-Appendix)
-
A Alternative Approach to Determined Economies
The first part of table A.5 is identical to what is reported in the main body of the paper.
It reports country-by-country regressions of economic performance (GDP) on the GET
index. Regressions include the lag dependent variable and AR-1 corrections. Countries
are ranked by the statistical significance of the index. The second part of the table
describes results from a similar regression analysis in which GET is replaced by its two
constituent parts (commodity prices and U.S. interest rates). The conclusion is that the
two criteria yield very similar samples. If we had relied on an joint significance test with
the two-variable approach, Nicaragua, Ecuador and Peru would not have made it into
the sample, even though the two components have significant effects for the last two of
these countries.
Table A.5: Alternative Specifications of Determined Economy Regressions
GET Only Interest Rates and Commodity Prices
Coef P-value Int. Rates log(Comm)Joint SignificanceF-Stat P-value
Lat. Am. 35.34 0.005** -5.54** 113.47** 10.22
-
B Country Dependence on Commodities
The figures cited in the footnote 11 were computed by the authors from data available in
the World Development Indicators (http://databank.worldbank.org).
In the paper we report the share of commodities relative to the total exports. How-
ever, this figure is not directly available in the databank. WDI breaks merchandise
exports into five categories: Agricultural raw materials, food, fuels, ores and metals,
and manufactures. As all but the last are commodities, we can easily obtain the share
of relative to merchandise exports.
However, total exports include both merchandise and service. The world bank reports
separate values of Goods exports, Merchandise Exports and Service exports. Good
exports are almost identical to mechandise exports, so we approximated the total share of
merchandise exports by the share of exports of goods relative to total exports as defined
by the sum of exports of goods and services.
In sum, figures reported in the paper are the share of commodities relative to the total
value of exports, which are defined as
Commodities
Total Exp.=
Commodities
Total Merch. Merchandise
Total Exp.
and operationalized as
Commodities
Total Exp.=
100 TX.VAL.MANF.ZS.UN100
BX.GSR.MRCH.CDBX.GSR.MRCH.CD + BX.GSR.NFSV.CD
as defined in the Table A.6 below, which reports the variable names and descriptions as
presented in the WDI.
Table A.7 shows the shares of each countrys total exports that are commodities. The
table uses figures from 2011, which is the last year for which data are available for all
countries. Countries are ordered from most to least dependent on commodities, and this
almost perfectly sorts countries into the determined and non-determined samples we
obtained by sorting on GETs explanatory power. The only exception is Honduras, which
has a relatively high dependence on commodities but is in the non-determined sample.
3 (Web-Appendix)
-
Tab
leA
.6:
Des
crip
tion
ofW
orld
Dev
elop
men
tIn
dic
ator
sV
aria
ble
sU
sed
Vari
able
Cod
eV
aria
ble
Nam
eD
efin
itio
n
TX
.VA
L.A
GR
I.Z
S.U
NA
gric
ult
ura
lra
wm
ater
ials
exp
orts
(%of
mer
chan
dis
eex
por
ts)
Agr
icu
ltu
ral
raw
mat
eria
lsco
mp
rise
SIT
Cse
ctio
n2
(cru
de
mat
eria
lsex
cep
tfu
els)
excl
ud
ing
div
isio
ns
22,27
(cru
de
fert
iliz
ers
and
min
eral
sex
clu
din
gco
al,
pet
role
um
,an
dp
reci
ous
ston
es),
and
28(m
etal
life
r-ou
sor
esan
dsc
rap
).
TX
.VA
L.F
OO
D.Z
S.U
NF
ood
exp
orts
(%of
mer
chan
dis
eex
por
ts)
Food
com
pri
ses
the
com
mod
itie
sin
SIT
Cse
ctio
ns
0(f
ood
and
live
anim
als)
,1
(bev
erag
esan
dto
bac
co),
and
4(a
nim
alan
dve
geta
ble
oils
and
fats
)an
dS
ITC
div
isio
n22
(oil
seed
s,oi
lnu
ts,
and
oil
kern
els)
.
TX
.VA
L.F
UE
L.Z
S.U
NF
uel
exp
orts
(%of
mer
chan
dis
eex
por
ts)
Fu
els
com
pri
seS
ITC
sect
ion
3(m
iner
alfu
els)
.
TX
.VA
L.M
AN
F.Z
S.U
NM
anu
fact
ure
sex
por
ts(%
of
mer
chan
dis
eex
por
ts)
Man
ufa
ctu
res
com
pri
seco
mm
odit
ies
inS
ITC
sect
ion
s5
(ch
emic
als)
,6
(bas
icm
anu
fact
ure
s),
7(m
ach
iner
yan
dtr
ansp
ort
equ
ipm
ent)
,an
d8
(mis
cell
aneo
us
man
ufa
ctu
red
good
s),
excl
ud
ing
div
isio
n68
(non
-fe
rrou
sm
etal
s).
TX
.VA
L.M
MT
L.Z
S.U
NO
res
and
met
als
exp
orts
(%of
mer
chan
dis
eex
por
ts)
Ore
san
dm
etal
sco
mp
rise
the
com
mod
itie
sin
SIT
Cse
ctio
ns
27(c
rud
efe
rtil
izer
,m
iner
als
nes
);28
(met
alli
fero
us
ores
,sc
rap
);an
d68
(non
-fer
rou
sm
etal
s).
BX
.GS
R.M
RC
H.C
DG
ood
sex
port
s(B
oP
,cu
rren
tU
S$)
Good
sex
por
tsre
fer
toal
lm
ovab
lego
od
s(i
ncl
ud
ing
non
mon
etar
ygo
ldan
dn
etex
por
tsof
good
su
nd
erm
erch
anti
ng)
invo
lved
ina
chan
geof
own
ersh
ipfr
omre
sid
ents
ton
onre
sid
ents
.D
ata
are