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#14 - JRL 7011
Date: Thu, 09 Jan 2003
From: Timothy Frye <frye@polisci.sbs.ohio-state.edu>
Subject: Elections and the economy

To: davidjohnson@erols.com

As they say in talk radio: "Long time listener, first time caller." With voters set to go to the polls in Russia in December, many have speculated about the effects of elections on the economy. Here are some data for 25 postcommunist countries in Eurasia from 1990-2000 that might help inform the debate. I consider elections for parliament in parliamentary systems and for the executive in presidential systems.

GDP Growth: In the postcommunist region, the average rate of annual growth in GDP is -3.9% in election years and -1.5% in non-election years - a significant difference. Whether the elections are held in democracies or non-democracies makes little difference for economic growth. Growth rates in election years in democracies average -2.0% and -2.3% in non-democracies as measured by POLITY IV. Thus, election years are associated with lower growth rates in all types of governments.

In previous research I found that these effects are particularly pronounced in countries with deep cleavages between ex-communists and non-communist parties. Controlling for a range of factors, as elections approach in countries with deep splits between ex-communists and non-communist parties growth rates decline precipitously. [See "The Perils of Polarization" at http://psweb.sbs.ohio-state.edu/faculty/tfrye/ ] Thus, elections influence growth.

Government Spending: Somewhat surprisingly, government spending is weakly related to the electoral cycle when looking across all 25 postcommunist countries. Government spending as a percentage of GDP is 39.5% in election years and 38.1% in non-election years. These figures are essentially unchanged if we consider only election years in democracies.

There is some evidence that elections affect spending by regional governments. See Katya Zhuravskaya, Kostya Sonin, and Ariane Lambert Mogiliansky's "The Capture of Bankruptcy" at http://www.cefir.org/papers.html

There is also evidence that the Russian government uses a variety of instruments to manipulate the economy prior to elections. See Vladimir Gimpelson and Dan Treisman, "Political Business Cycles and Russian Elections, or the Manipulations of Chudar" in the British Journal of Political Science 31:2, April 2001.

Trade Liberalization: Many have speculated that upcoming elections will impede Russia's negotiations with the World Trade Organization. There is some basis for this view. Each year the World Bank calculates the extent of trade openness for each country in region on a scale of 1-100. Average rates of change in this trade openness scale are .17 in the year prior to elections and .45 in all other years. But there is a potential silver lining. In a paper co-authored with Ed Mansfield of the University of Pennsylvania, we found that trade liberalization was most likely to occur immediately after democratic elections. [See "Timing is Everything" at http://psweb.sbs.ohio-state.edu/faculty/tfrye/ ] We also found that elections in non-democracies had little effect on trade liberalization. Thus, for elections to promote trade liberalization in Russia, Russia must become more democratic.

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