Political risk dynamics, leaders’ capability, and economic performance: New evidence of national executives

Abstract

In this paper, I provide the first cross-country empirical analysis to establish three stylized facts on how term limits and political risk shape the relationship between leader capability and economic outcomes, using a novel data set of national leaders’ personal and tenure characteristics and countries’ institutional features: (1) In democracies with (exogenous) term limits, the positive association between leaders’ performance and their capability is significantly less pronounced in their last term, when they do not have face further political risks; (2) In democracies with term limits, the positive association between leaders’ performance and their capability is decreasing over time on average in their entire tenure, but exhibits a jump in the term right before the last term; and (3) The above patterns are more salient in presidential democracies with binding term limits than parliamentary democracies while non-existent in non-democracies where leaders are not appointed via elections. These facts are consistent with a theory of political risk and electoral dynamics.