The Impact of Political Competition on Economic Growth: Evidence from Municipalities in South Africa

• Published date: 01 March 2019
• Date: 01 March 2019
• DOI: http://doi.org/10.1111/saje.12208
• Author: Nonso Obikili

© 2018 Economic Society of Sout h Africa. doi : 10.1111/ saje .122 08

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South African Journal of Economics Vol. 87:1 March 2019

THE IMPACT OF POLITICAL COMPETITION ON

ECONOMIC GROWTH: EVIDENCE FROM MUNICIPALITIES

IN SOU TH A FRIC A

NONSO OBIKILI*,†

Abstract

This paper examines the impact of political competition on economic growth. In this paper, I

show that internal political dynamics, distinct from the type of political system, can having

different effects on growth. Using results from the 1994 and 1999 elections in South Africa, I

show that municipalities with higher levels of political competition have shown lower levels of

economic growth. I use individual level surveys to show that this political competition is associated

with political paralysis, dissatisfaction with the current democracy and government and lower

optimism about the future.

JEL Classification: P16, O47, D72

Keywords: Political compe tition, economic growth, democracy, vot ing behaviour, Africa, South

Africa

1. INTRODUC TION

Many authors have attempted to study the relationship between political systems and

economic growth. The studies usua lly examine varying degrees of democracy and au-

tocracy and the effect of the political system on subsequent growth. Although there is

no consensus, the literature seems to suggest that very high economic growth rates are

associated with autocracies. Sachs (2005) and Collier (2011), for instance, argue that de-

mocracy is not helpful for economic development. Kelsall and Booth (2013) and Booth

(2012) also argue that multi-party electoral democracies are more likely to experience

slower growth through weaker governa nce. Jones and Olken (2005) argue that democra-

cies make it diff icult for successful economic policies, such as those of Lee-Kwan Yew in

Singapore or Deng Xiaoping in China, to be implemented. Although some studies a rgue

for a positive effect of democracy on economic growth (La ke and Baum, 2001; Lindert,

2004; Chauvet and Collier, 2009; Knutsen, 2013), the argument in favour of more auto-

cratic regimes seems to centre around strong political leadership. La Porta et al. (2013),

e.g. argue that many of the countries t hat managed to get out of poverty since 1960 were

autocratic regimes. They argue that the choices made by dictators have allowed some

poor countries emerge from poverty. In essence these studies arg ue that the freedom of

*Corresponding author: Ec onomic Research Souther n Africa, Newlands-on-Main, F0301, 3rd

Floor Mariendahl House , Cnr. Campground and Mai n Roads, Claremont, 7700, South Africa.

Tel: +27216713980. E-mail: Nonso.Obikili@Econrsa.org

† Department of Economics, Stel lenbosch University.

South African Journal

of Economics

4 South African Journal of Economics Vol. 87:1 March 2019

© 2018 Economic Society of Sout h Africa.

autocratic leaders to make tough choices without the threat from effec tive opposition,

gives autocratic regimes an advantage. However, the freedom to make tough decisions

and the political system are not necessarily intertwined. It is possible to have relatively

weak autocratic regimes that face i nternal threats, which do not have the same freedom

to make long-term decisions. On the other hand, it is also possible to have strong political

regimes in democracies that have the relative freedom to make tough decisions without

the threat of being voted out. The important point here is the distinction bet ween the

type of political system and the internal dynamics given the politica l system.

In this paper, I examine the effect of the freedom to make decisions without con-

sequences from opposing political actors, here on referred to as political competition,

on economic growth in a democracy. Using election results from municipalities across

South Africa, I estimate the relationship between political competition and economic

growth. I make the assumption that municipalities with a lower winning margin face

more competition from political actors in different parties. Examining the effect of po-

litical competition across municipalities in South Africa allows me to isolate the effects

of having different type s of political institutions. Municipalities across South Africa are

all democratic and all face the same systems of checks and ba lances, the threat of an

unconstitutional regime change i s virtually non-existent, there is a reasonable amount of

individual and press freedoms that apply across municipalities, and the rules regarding

accountability are uniform across all municipalities. Any relationship between politi-

cal competition and growth therefore cannot be due to the political system but to the

internal dynamics within the system. I find that in municipalities in South Africa, a

higher level of political competition is associated with slower growt h. I show that voting

patterns were largely driven by ethnicity a nd race therefore limiting the possibility of

reverse causality. Finally, I show that the result cannot be explained by the distribution

of political patronage but may be due to policy paralysis at t he municipal level. The next

section gives a background of the South Af rican political context, section three discusses

the data, section four discu sses the results, section five explores why competition matters

and section six concludes.

2. BAC KGROUND

Although there is no consensus on the impact s of democracy and autocracy on economic

growth, episodes of high growt h in some countries are often associated with autocratic

regimes. Deng Xiaoping in China, Lee Kuan Yew in Singapore and Paul Kagame in

Rwanda are often touted as examples of cases where autocratic regimes have success-

fully implemented growth miracles. Olson (2000), e.g. argues that autocratic regimes

can produce faster economic growth given some conditions, such as the expectation of

a long tenure. Almeida and Ferreira (2002) test some of the arguments of Olson (2000)

and find that the best performers are more likely to be autocracies. Although they show

that the worst are likely to be autocracies as well. Glaeser et al. 2004) also f ind that poor

countries that get out of poverty tend to be led by dictators. Findings by Acemoglu et al.

(2003) and Yang (2008) also support the argument that countries with periods of hig h

growth rates are often a ssociated with autocracies. The argument in favour of these auto-

cratic regimes is that leaders have more discretionar y power to implement either good or