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

daniela.campello@fgv.br

Cesar Zucco Jr.Assistant Professor

Fundacao Getulio VargasPraia de Botafogo 190, Rio de Janeiro/RJ, Brazil

cesar.zucco@fgv.br

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.

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

2

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

3

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

4

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

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

6

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

7

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).

8

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.

9

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.

10

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-

11

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.

12

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.

13

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.

14

Table 1: Good Economic Times Index and GDP (19802011)

Coefficient onGET

p-value

Latin America 35.34 0.005 Argentina 9.77

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

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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34

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