By Carmina Angelica V. Olano

ELECTIONS are widely believed to have a growth-inducing effect on an economy.

But do the numbers support this notion?

From 2000 to 2018, the country’s gross domestic product (GDP) growth averaged 6.3% in the six election years in this period, according to BusinessWorld calculations from the Philippine Statistics Authority’s national accounts. That compares to the 5.3% average growth for the entire period and 4.9% in non-election years.

A tale of spending during election years, 2000-2018

“Election campaign spending by political parties and candidates — through paraphernalia, media, meetings and sorties, and administrative expenses — inject billions of pesos to the economy which in turn create jobs in select industries and further spur domestic demand. These activities will likely increase household consumption” National Economic and Development Authority (NEDA) Undersecretary Rosemarie G. Edillon said in an e-mailed reply to BusinessWorld questions.

“Consumer expectations are also more upbeat during election years, which could indirectly spur domestic demand. In fact, previous Consumer Expectation Surveys published by the Bangko Sentral ng Pilipinas showed that consumer sentiment relatively improves during election periods (from first to second quarters of the year), partly due to their optimism on the election of new government officials.”

Consumer confidence is said to have a high correlation to overall economic growth, as its trajectory often follows economic expansion.

But while data lends credence to the association between economic growth and election spending, the question of how much exactly each component of the economy contributes to economic growth is less clear.

During the 2000-2018 period, household spending growth averaged 5.09%. Focusing on growth only in election years, the figure is roughly similar at 5.13%. Meanwhile, average growth in non-election years is around 5.07%.

On the other hand, government spending was faster during non-election years with average growth of 5.4%, compared to 4.2% in election years and five percent in both election and non-election years.

“Based on the patterns, government spending tends to increase a year before most election years as some incumbent officials (especially those running for re-elections) have the tendency to increase government spending on various projects, such as infrastructure, health care, education, and other social services especially those have the biggest positive impact on their constituents…” Rizal Commercial Banking Corp. economist Michael L. Ricafort explained in an e-mail.

Sun Life Financial economist Patrick M. Ella shared this view. “Note that government spending tends to spike in pre-election years… as they are constrained by [the] election ban…” he said in a separate e-mail, referring to the ban imposed by the Commission on Elections on new public works spending as well as hiring and transfer of government workers for 45 days prior to elections in May.

Surprisingly, it is neither household consumption nor government spending that registers the highest growth in election years.

Rather, it is growth in private investments.

Growth in private investments — represented in the national accounts as capital formation — averaged 17.6% in election years in 2000-2018. That was faster than the 4.8% average growth observed in non-election years and the 8.8% average in 2000-2018.

Capital formation includes investments in fixed capital — which includes construction and durable equipment, among others.

With the exception of election years 2004 and 2007, capital formation’s contribution to GDP growth tends to go up during election years and then dips a year after.

Notably, it also has the biggest contribution to growth among demand-side components as compared to non-election years during which household consumption was the biggest demand-side contributor to growth.

“The government tries to finish infrastructure projects it starts before the end of its term — and usually, that is the election year. Meanwhile, private sector companies try to cash in on higher consumer demand during the election period by making sure their productive capacities are at their peak during these years,” Department of Finance Undersecretary and chief economist Gil S. Beltran explained in a mobile phone message.

ING Bank N.V. senior economist Nicholas Antonio T. Mapa and Security Bank Corp. economist Robert Dan J. Roces share Mr. Beltran’s assessment.

“In more recent years, capital formation tends to grow or remain strong following an election year as infrastructure projects proceed where investments in construction and durable equipment expand. Its growth is even stronger in an election year as there is a construction ban preceding the polls, hence, stockpiling on equipment and material for post-election projects,” Mr. Roces explained in an e-mail.

For ING Bank’s Mr. Mapa, most election-year boosts come from accelerated consumption as well as a “buildup in capital formation usually in the first two quarters ahead of the polls in May.”

“This could make sense as outgoing officials look to finally finish their big projects before their term is up and maybe even look to gain some press if he or she is running for re-election or another elected position in the same district,” Mr. Mapa explained.

With the exception of election years 2001 and 2004, investments in construction grew by double-digit rates in subsequent election years: 11.3% in 2007, 17.5% in 2010, 10.3% in 2013 and 13.1% in 2016.

NEDA’s Ms. Edillon underscored that elections do not influence the budget for public infrastructure. “What is apparent… is the reduction in public infrastructure in the year immediately after a national election, except in 2005 because we had the same President [Gloria Macapagal-Arroyo] and… in 2017, because of the conscious decision to proceed with the existing fiscal program (which was crafted by the previous administration),” she said.

ING Bank’s Mr. Mapa gave a similar view, adding that the gross value added in construction drops usually in the year following elections “as a newly elected official will need to go through a learning curve before he or she can get big public construction projects out.”

“The cycle continues every three years until the next election,” Mr. Mapa said.

Union Bank of the Philippines, Inc. (UnionBank) Chief Economist Ruben Carlo O. Asuncion noted the pick up in public construction growth in years preceding elections due to “legal impediments.”

“Thus, this may be a reason why capital formation gets a bump during election years as well,” Mr. Asuncion explained in an e-mail.

Despite these trends, economists cautioned that these variables indicate only correlation and not causal effect.

“[E]ye-balling the data gives a general notion that an election year typically encourages consumption, government spending, and formation of capital,” UnionBank’s Mr. Asuncion said, noting that there exists “some sort of correlation” among these indicators.

“It would be better to test it further with econometric tools.”