IDEAS home Printed from https://ideas.repec.org/a/kap/jecgro/v28y2023i4d10.1007_s10887-022-09221-5.html
   My bibliography  Save this article

Democratization, leader education and growth: firm-level evidence from Indonesia

Author

Listed:
  • Paul Pelzl

    (NHH Norwegian School of Economics)

  • Steven Poelhekke

    (CEPR, and CESifo)

Abstract

Does the economic success of democratization depend on newly elected leaders’ characteristics? We exploit the unique Indonesian democratization process, where districts exogenously democratized in different years. In a census of manufacturing plants, employment drops by 5% in districts that elect a non-college educated mayor, while employment stays constant under college graduates. Non-college educated mayors substantially raise taxation but provide less infrastructure, do not spend more on social programs, and are more often involved in corruption cases. Other leader attributes and district characteristics, as well as tests for pre-treatment trends, for selection on unobservables, and for close elections do not explain away the important role of leaders’ education in shaping local policies and growth.

Suggested Citation

  • Paul Pelzl & Steven Poelhekke, 2023. "Democratization, leader education and growth: firm-level evidence from Indonesia," Journal of Economic Growth, Springer, vol. 28(4), pages 571-600, December.
    • Handle: RePEc:kap:jecgro:v:28:y:2023:i:4:d:10.1007_s10887-022-09221-5
    DOI: 10.1007/s10887-022-09221-5
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10887-022-09221-5
    File Function: Abstract
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s10887-022-09221-5?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Elias Papaioannou & Gregorios Siourounis, 2008. "Democratisation and Growth," Economic Journal, Royal Economic Society, vol. 118(532), pages 1520-1551, October.
    2. Fabrice Murtin & Romain Wacziarg, 2014. "The democratic transition," Journal of Economic Growth, Springer, vol. 19(2), pages 141-181, June.
    3. Irma Clots-Figueras, 2012. "Are Female Leaders Good for Education? Evidence from India," American Economic Journal: Applied Economics, American Economic Association, vol. 4(1), pages 212-244, January.
    4. Jan De Loecker & Frederic Warzynski, 2012. "Markups and Firm-Level Export Status," American Economic Review, American Economic Association, vol. 102(6), pages 2437-2471, October.
    5. Monica Martinez-Bravo, 2014. "The Role of Local Officials in New Democracies: Evidence from Indonesia," American Economic Review, American Economic Association, vol. 104(4), pages 1244-1287, April.
    6. Florian Neumeier, 2018. "Do Businessmen Make Good Governors?," Economic Inquiry, Western Economic Association International, vol. 56(4), pages 2116-2136, October.
    7. Samuel Bazzi & Matthew Gudgeon, 2021. "The Political Boundaries of Ethnic Divisions," American Economic Journal: Applied Economics, American Economic Association, vol. 13(1), pages 235-266, January.
    8. Armin Falk & Anke Becker & Thomas Dohmen & Benjamin Enke & David Huffman & Uwe Sunde, 2018. "Global Evidence on Economic Preferences," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 133(4), pages 1645-1692.
    9. Clément de Chaisemartin & Xavier D'Haultfœuille, 2020. "Two-Way Fixed Effects Estimators with Heterogeneous Treatment Effects," American Economic Review, American Economic Association, vol. 110(9), pages 2964-2996, September.
    10. Kevin F. Forbes & Ernest M. Zampelli, 2013. "The impacts of religion, political ideology, and social capital on religious and secular giving: evidence from the 2006 Social Capital Community Survey," Applied Economics, Taylor & Francis Journals, vol. 45(17), pages 2481-2490, June.
    11. Monica Martinez-Bravo, 2017. "The Local Political Economy Effects of School Construction in Indonesia," American Economic Journal: Applied Economics, American Economic Association, vol. 9(2), pages 256-289, April.
    12. Torsten Persson & Guido Tabellini, 2006. "Democracy and Development: The Devil in the Details," American Economic Review, American Economic Association, vol. 96(2), pages 319-324, May.
    13. Clots-Figueras, Irma, 2011. "Women in politics: Evidence from the Indian States," Journal of Public Economics, Elsevier, vol. 95(7-8), pages 664-690, August.
    14. Cage, Julia & Dagorret, Anna & Grosjean, Pauline & Jha, Saumitra, 2020. "Heroes and Villains: The Effects of Combat Heroism on Autocratic Values and Nazi Collaboration in France," Research Papers 3923, Stanford University, Graduate School of Business.
    15. Beata Javorcik & Steven Poelhekke, 2017. "Former Foreign Affiliates: Cast Out and Outperformed?," Journal of the European Economic Association, European Economic Association, vol. 15(3), pages 501-539.
    16. Easterly,William R. & Pennings,Steven Michael, 2020. "Leader Value Added : Assessing the Growth Contribution of Individual National Leaders," Policy Research Working Paper Series 9215, The World Bank.
    17. Hristos Doucouliagos & Mehmet Ali Ulubaşoğlu, 2008. "Democracy and Economic Growth: A Meta‐Analysis," American Journal of Political Science, John Wiley & Sons, vol. 52(1), pages 61-83, January.
    18. Monica Martinez‐Bravo & Priya Mukherjee & Andreas Stegmann, 2017. "The Non‐Democratic Roots of Elite Capture: Evidence From Soeharto Mayors in Indonesia," Econometrica, Econometric Society, vol. 85(6), pages 1991-2010, November.
    19. Timothy Besley & Jose G. Montalvo & Marta Reynal‐Querol, 2011. "Do Educated Leaders Matter?," Economic Journal, Royal Economic Society, vol. 121(554), pages 205-205, August.
    20. William Easterly & Steven Pennings, 2020. "Leader Value Added: Assessing the Growth Contribution of Individual National Leaders," NBER Working Papers 27153, National Bureau of Economic Research, Inc.
    21. Olaf Hübler & Lukas Menkhoff & Ulrich Schmidt, 2018. "Who Is Cheating? The Role of Attendants, Risk Aversion, and Affluence," Discussion Papers of DIW Berlin 1736, DIW Berlin, German Institute for Economic Research.
    22. Beber, Alessandro & Fabbri, Daniela, 2012. "Who times the foreign exchange market? Corporate speculation and CEO characteristics," Journal of Corporate Finance, Elsevier, vol. 18(5), pages 1065-1087.
    23. Besley, Timothy & Reynal-Querol, Marta, 2011. "Do Democracies Select More Educated Leaders?," American Political Science Review, Cambridge University Press, vol. 105(3), pages 552-566, August.
    24. Daron Acemoglu & Suresh Naidu & Pascual Restrepo & James A. Robinson, 2019. "Democracy Does Cause Growth," Journal of Political Economy, University of Chicago Press, vol. 127(1), pages 47-100.
    25. Robin Burgess & Remi Jedwab & Edward Miguel & Ameet Morjaria & Gerard Padró i Miquel, 2015. "The Value of Democracy: Evidence from Road Building in Kenya," American Economic Review, American Economic Association, vol. 105(6), pages 1817-1851, June.
    26. Helliwell, John F., 1994. "Empirical Linkages Between Democracy and Economic Growth," British Journal of Political Science, Cambridge University Press, vol. 24(2), pages 225-248, April.
    27. Brollo, Fernanda & Troiano, Ugo, 2016. "What happens when a woman wins an election? Evidence from close races in Brazil," Journal of Development Economics, Elsevier, vol. 122(C), pages 28-45.
    28. Barro, Robert J, 1996. "Democracy and Growth," Journal of Economic Growth, Springer, vol. 1(1), pages 1-27, March.
    29. Jean Tirole, 1996. "A Theory of Collective Reputations (with applications to the persistence of corruption and to firm quality)," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 63(1), pages 1-22.
    30. Pranab Bardhan, 1997. "Corruption and Development: A Review of Issues," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1320-1346, September.
    31. Dani Rodrik & Romain Wacziarg, 2005. "Do Democratic Transitions Produce Bad Economic Outcomes?," American Economic Review, American Economic Association, vol. 95(2), pages 50-55, May.
    32. Abeler, Johannes & Becker, Anke & Falk, Armin, 2014. "Representative evidence on lying costs," Journal of Public Economics, Elsevier, vol. 113(C), pages 96-104.
    33. Athey, Susan & Imbens, Guido W., 2022. "Design-based analysis in Difference-In-Differences settings with staggered adoption," Journal of Econometrics, Elsevier, vol. 226(1), pages 62-79.
    34. Olken, Benjamin A., 2009. "Corruption perceptions vs. corruption reality," Journal of Public Economics, Elsevier, vol. 93(7-8), pages 950-964, August.
    35. Alberto Alesina & Traviss Cassidy & Ugo Troiano, 2019. "Old and Young Politicians," Economica, London School of Economics and Political Science, vol. 86(344), pages 689-727, October.
    36. Marianne Bertrand & Antoinette Schoar, 2003. "Managing with Style: The Effect of Managers on Firm Policies," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(4), pages 1169-1208.
    37. Emily Oster, 2019. "Unobservable Selection and Coefficient Stability: Theory and Evidence," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 37(2), pages 187-204, April.
    38. Ronny Freier & Sebastian Thomasius, 2016. "Voters prefer more qualified mayors, but does it matter for public finances? Evidence for Germany," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 23(5), pages 875-910, October.
    39. Dawoon Jung & Tushar Bharati & Seungwoo Chin, 2021. "Does Education Affect Time Preference? Evidence from Indonesia," Economic Development and Cultural Change, University of Chicago Press, vol. 69(4), pages 1451-1499.
    40. Thomas Fujiwara, 2015. "Voting Technology, Political Responsiveness, and Infant Health: Evidence From Brazil," Econometrica, Econometric Society, vol. 83, pages 423-464, March.
    41. Guojun He & Shaoda Wang, 2017. "Do College Graduates Serving as Village Officials Help Rural China?," American Economic Journal: Applied Economics, American Economic Association, vol. 9(4), pages 186-215, October.
    42. Judith Chevalier & Glenn Ellison, 1999. "Are Some Mutual Fund Managers Better Than Others? Cross‐Sectional Patterns in Behavior and Performance," Journal of Finance, American Finance Association, vol. 54(3), pages 875-899, June.
    43. Dreher, Axel & Lamla, Michael J. & Lein, Sarah M. & Somogyi, Frank, 2009. "The impact of political leaders' profession and education on reforms," Journal of Comparative Economics, Elsevier, vol. 37(1), pages 169-193, March.
    44. Armin Falk & Anke Becker & Thomas Dohmen & Benjamin Enke & David B. Huffman & Uwe Sunde, 2017. "Global Evidence on Economic Preferences," NBER Working Papers 23943, National Bureau of Economic Research, Inc.
    45. Tavares, Jose & Wacziarg, Romain, 2001. "How democracy affects growth," European Economic Review, Elsevier, vol. 45(8), pages 1341-1378, August.
    46. Blane Lewis, 2003. "Tax And Charge Creation By Regional Governments Under Fiscal Decentralisation: Estimates And Explanations," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 39(2), pages 177-192.
    47. Madsen, Jakob B. & Raschky, Paul A. & Skali, Ahmed, 2015. "Does democracy drive income in the world, 1500–2000?," European Economic Review, Elsevier, vol. 78(C), pages 175-195.
    48. Yang Yao & Muyang Zhang, 2015. "Subnational leaders and economic growth: evidence from Chinese cities," Journal of Economic Growth, Springer, vol. 20(4), pages 405-436, December.
    49. Fisman, Raymond & Svensson, Jakob, 2007. "Are corruption and taxation really harmful to growth? Firm level evidence," Journal of Development Economics, Elsevier, vol. 83(1), pages 63-75, May.
    50. Philip Keefer, 2007. "Clientelism, Credibility, and the Policy Choices of Young Democracies," American Journal of Political Science, John Wiley & Sons, vol. 51(4), pages 804-821, October.
    51. James Levinsohn & Amil Petrin, 2003. "Estimating Production Functions Using Inputs to Control for Unobservables," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 70(2), pages 317-341.
    52. Magnus Carlsson & Gordon B. Dahl & Björn Öckert & Dan-Olof Rooth, 2015. "The Effect of Schooling on Cognitive Skills," The Review of Economics and Statistics, MIT Press, vol. 97(3), pages 533-547, July.
    53. Mary Hallward-Driemeier & Anna Kochanova & Bob Rijkers, 2021. "Does Democratisation Promote Competition? Evidence from Indonesia [Democracy and firm productivity: evidence from Indonesia’]," The Economic Journal, Royal Economic Society, vol. 131(640), pages 3296-3321.
    54. Piergiuseppe Fortunato & Ugo Panizza, 2015. "Democracy, education and the quality of government," Journal of Economic Growth, Springer, vol. 20(4), pages 333-363, December.
    55. James Banks & Fabrizio Mazzonna, 2012. "The Effect of Education on Old Age Cognitive Abilities: Evidence from a Regression Discontinuity Design," Economic Journal, Royal Economic Society, vol. 122(560), pages 418-448, May.
    56. François, Abel & Panel, Sophie & Weill, Laurent, 2020. "Educated dictators attract more foreign direct investment," Journal of Comparative Economics, Elsevier, vol. 48(1), pages 37-55.
    57. Danny Miller & Xiaowei Xu & Vikas Mehrotra, 2015. "When is human capital a valuable resource? The performance effects of Ivy league selection among celebrated CEOs," Strategic Management Journal, Wiley Blackwell, vol. 36(6), pages 930-944, June.
    58. Raghabendra Chattopadhyay & Esther Duflo, 2004. "Women as Policy Makers: Evidence from a Randomized Policy Experiment in India," Econometrica, Econometric Society, vol. 72(5), pages 1409-1443, September.
    59. Fitria Fitrani & Bert Hofman & Kai Kaiser, 2005. "Unity in diversity? The creation of new local governments in a decentralising Indonesia," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 41(1), pages 57-79.
    60. Sebastian Galiani & Federico Weinschelbaum, 2013. "Social Status and Corruption," Nordic Journal of Political Economy, Nordic Journal of Political Economy, vol. 38, pages 1-1.
    61. Christian von Luebke, 2009. "The political economy of local governance: findings from an Indonesian field study," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 45(2), pages 201-230.
    62. Lahoti, Rahul & Sahoo, Soham, 2020. "Are educated leaders good for education? Evidence from India," Journal of Economic Behavior & Organization, Elsevier, vol. 176(C), pages 42-62.
    63. repec:hal:spmain:info:hdl:2441/5m0od0o9jn9pqbdmos7fpt28hg is not listed on IDEAS
    64. Brian Beach & Daniel Jones, 2016. "Business as usual: Politicians with business experience, government budgets, and policy outcomes," Working Papers 169, Department of Economics, College of William and Mary.
    65. Benjamin F. Jones & Benjamin A. Olken, 2005. "Do Leaders Matter? National Leadership and Growth Since World War II," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(3), pages 835-864.
    66. Saul Pleeter & John T. Warner, 2001. "The Personal Discount Rate: Evidence from Military Downsizing Programs," American Economic Review, American Economic Association, vol. 91(1), pages 33-53, March.
    67. Vial, Virginie & Hanoteau, Julien, 2010. "Corruption, Manufacturing Plant Growth, and the Asian Paradox: Indonesian Evidence," World Development, Elsevier, vol. 38(5), pages 693-705, May.
    68. Robert H. Bates & Ghada Fayad & Anke Hoeffler, 2012. "The state of democracy in Sub-Saharan Africa," International Area Studies Review, Center for International Area Studies, Hankuk University of Foreign Studies, vol. 15(4), pages 323-338, December.
    69. Pertuze, Julio A. & Reyes, Tomas & Vassolo, Roberto S. & Olivares, Nicolas, 2019. "Political uncertainty and innovation: The relative effects of national leaders’ education levels and regime systems on firm-level patent applications," Research Policy, Elsevier, vol. 48(9), pages 1-1.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Niklas Potrafke, 2024. "The Economic Consequences of Businesspeople in Politics: A Survey," CESifo Working Paper Series 11502, CESifo.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Peveri, Julieta, 2022. "The wise, the politician, and the strongman: Types of national leaders and quality of governance," Journal of Comparative Economics, Elsevier, vol. 50(4), pages 849-895.
    2. Daron Acemoglu & Suresh Naidu & Pascual Restrepo & James A. Robinson, 2019. "Democracy Does Cause Growth," Journal of Political Economy, University of Chicago Press, vol. 127(1), pages 47-100.
    3. Julieta Peveri, 2021. "The Wise, the Politician and the Strongman: National Leaders' Type and Quality of Governance," AMSE Working Papers 2120, Aix-Marseille School of Economics, France, revised May 2022.
    4. Julieta Peveri, 2021. "The Wise, the Politician and the Strongman: National Leaders' Type and Quality of Governance," Working Papers halshs-03173020, HAL.
    5. Oscar Calvo-Gonz'alez & Axel Eizmendi & Germ'an Reyes, 2022. "The Shifting Attention of Political Leaders: Evidence from Two Centuries of Presidential Speeches," Papers 2209.00540, arXiv.org, revised Jun 2023.
    6. Gutmann, Jerg & Metelska-Szaniawska, Katarzyna & Voigt, Stefan, 2024. "Leader characteristics and constitutional compliance," European Journal of Political Economy, Elsevier, vol. 84(C).
    7. Méon, Pierre-Guillaume & Sekkat, Khalid, 2022. "A time to throw stones, a time to reap: how long does it take for democratic transitions to improve institutional outcomes?," Journal of Institutional Economics, Cambridge University Press, vol. 18(3), pages 429-443, June.
    8. Lars Pelke, 2023. "Reanalysing the link between democracy and economic development," International Area Studies Review, Center for International Area Studies, Hankuk University of Foreign Studies, vol. 26(4), pages 361-383, December.
    9. Jain, Chandan & Kashyap, Shagun & Lahoti, Rahul & Sahoo, Soham, 2023. "The impact of educated leaders on economic development: Evidence from India," Journal of Comparative Economics, Elsevier, vol. 51(3), pages 1068-1093.
    10. Brieger Stefan & Markwardt Gunther, 2020. "The Democracy–Economy-Nexus," Review of Economics, De Gruyter, vol. 71(2), pages 135-167, August.
    11. Sima, Di & Huang, Fali, 2023. "Is democracy good for growth? — Development at political transition time matters," European Journal of Political Economy, Elsevier, vol. 78(C).
    12. Bruce, Raphael & Cavgias, Alexsandros & Meloni, Luis & Remígio, Mário, 2022. "Under pressure: Women’s leadership during the COVID-19 crisis," Journal of Development Economics, Elsevier, vol. 154(C).
    13. Lahoti, Rahul & Sahoo, Soham, 2020. "Are educated leaders good for education? Evidence from India," Journal of Economic Behavior & Organization, Elsevier, vol. 176(C), pages 42-62.
    14. Carl Henrik Knutsen, 2012. "Democracy and economic growth: A survey of arguments and results," International Area Studies Review, Center for International Area Studies, Hankuk University of Foreign Studies, vol. 15(4), pages 393-415, December.
    15. Jain, Chandan & Kashyap, Shagun & Lahoti, Rahul & Sahoo, Soham, 2022. "Do Educated Leaders Affect Economic Development? Evidence from India," IZA Discussion Papers 15278, Institute of Labor Economics (IZA).
    16. Sørensen, Rune J., 2023. "Educated politicians and government efficiency: Evidence from Norwegian local government," Journal of Economic Behavior & Organization, Elsevier, vol. 210(C), pages 163-179.
    17. Felipe González & Mounu Prem, 2020. "Losing your dictator: firms during political transition," Journal of Economic Growth, Springer, vol. 25(2), pages 227-257, June.
    18. Absher, Samuel & Grier, Robin & Grier, Kevin, 2023. "The consequences of CIA-sponsored regime change in Latin America," European Journal of Political Economy, Elsevier, vol. 80(C).
    19. Nisticò, Roberto, 2022. "Political institutions and economic development over more than a century," Structural Change and Economic Dynamics, Elsevier, vol. 61(C), pages 199-215.
    20. Colagrossi, Marco & Rossignoli, Domenico & Maggioni, Mario A., 2020. "Does democracy cause growth? A meta-analysis (of 2000 regressions)," European Journal of Political Economy, Elsevier, vol. 61(C).

    More about this item

    Keywords

    Democratization; Political leader education; Manufacturing; Indonesia;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
    • I25 - Health, Education, and Welfare - - Education - - - Education and Economic Development
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:jecgro:v:28:y:2023:i:4:d:10.1007_s10887-022-09221-5. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.