When Leaders Understand Economics

Nations perform better when top politicians have a background in economics.

ECONOMIES PERFORM BETTER when they’re led by politicians who have been educated in economics, according to Craig Brown, a visiting assistant professor of finance at Purdue University’s Krannert School of Management in West Lafayette, Indiana. Brown came to this conclusion after studying the backgrounds of 1,681 government leaders and the economic data of 146 countries. He based his analysis on data that spanned the years 1950 to 2014, including economic data from the World Bank.

U.S. presidents Ronald Reagan and Bill Clinton, both of whom studied economics, are two examples that align with the broader data, says Brown. “It is easy to find other examples across the globe: Singapore, a country that is well-known for its economic success, benefited from the effective leadership of Lee Kuan Yew throughout his long tenure; and Thabo Mbeki presided over the greatest economic expansion in South Africa since the country’s experience with fully democratic elections in 1994. Both of these leaders studied economics.”

During the 65-year period he studied, Brown found that GDP per capita grew by 1.53 percent in the year after countries transitioned from incumbents who didn’t have economic backgrounds to newly chosen governmental leaders who did. Conversely, when countries underwent exchanges of power between leaders with noneconomic backgrounds, their GDP per capita shrank by 1.24 percent the following year.

Brown also analyzed statistics from the World Tax database to test whether first-year GDP growth was linked to anticipated reductions in personal income tax rates for the wealthy. That first-year growth could be happening “in anticipation of what an economic leader will do on the policy front,” he says.

Growth was more pronounced in countries that allowed politicians wide-ranging authority to enact the economic policies they promised while on the campaign trail. To measure government authority, Brown used the Polity data series, which separates regimes into four categories: full autocracy, part autocracy, part democracy, and full democracy.

He says, “In mixed regimes, where there are some autocratic mechanisms, the effect seems to be stronger compared to cases of pure democracies.”

“Economic Leadership and Growth” was first made available online November 12, 2019, in the Journal of Monetary Economics.

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