Do Autocratic Political Leaders Always Hamper Economic Growth: Evidence from Australia

Political leaders oftentimes matter for economic growth and development, a fact that can only seldom be disputed. However, while scholars agree that political leaders can have profound impact on the trajectory of economic growth, there is still disagreement on whether autocratic political leaders are beneficial for long-term growth. Some argue that a democratic political system is genuinely beneficial for economic growth in the long run, while others believe that democracy does not translate into higher economic growth and may even hurt it through the costly redistribution. This work contributes to the ongoing debate on the relatioship between political leaders and economic growth. We discuss the contribution of autocratic tendencies in democratically elected political leaders to economic growth of mature developed economies. To this end, we exploit the unique effect of the election of Sir Charles Court as a state premier of Western Australia in 1975 to estimate the consequence of autocratic state premiers to economic growth within a federal system of checks and balances, based on a mixed Presidential and Westminster parliamentary institutional design. Our argument is that Court’s premiership marked the increased use of autocratic practices in pursuit of active industrial policy, adoption of trade treaties with countries such as Japan, and the suppression of rent-seeking interest groups, whilst at the same time maintaining an impartial and reasonably high quality of policymaking by the government cabinet, and high level of respect for judicial and legislative branches of state government. We hypothesize that some autocratic tendencies may help economic growth provided that increased discretion is used to address government failures that act as a brake on the economic development, and could otherwise lead to institutional sclerosis, deterioration of the rule of law and abuse of power for personal gain. In this sense, the benevolent use of discretion in decision making, outside of the bounds of the constitutional power afforded to a Premier is technically autocratic, and has aided development beyond what would have been otherwise achieved if the legislated limitations on the executive had been upheld. Using synthetic control method, we match Western Australia’s pre-Court growth trajectory with two large control samples of more than 100 countries and more than 600 regions worldwide to estimate the counterfactual scenario in response to the Court state premiership. Our estimates indicate a large positive growth effect that appears to be permanent and increases over time, providing evidence of the significant structural break emanating from Court rule. Down to the present day, per capita income of Western Australia is about 27 percent higher compared to the country-level and region-level synthetic control group without Court premiership. The estimated growth effect of Court’s premiership is robust to a large variety of spatial and temporal placebo checks, is statistically significant at conventional levels and does not appear to be sensitive to the composition of control samples.