Government Trust and Macro Government Trust and Macro economic Variableseconomic Variables

- Focusing Approval Rating of - Focusing Approval Rating of President MB LeePresident MB Lee

Yoonseuk WooSoongsil University

There are loads of literature regarding government trust. 

Most studies are related to the relationship between personal perception of government such as satisfaction about government policy or leadership, and variables of personal orientation such as political attitude, experience of participation, understading about policy outcomes, socioeconomic status and so forth.

Methodologically, most of them are cross-sectional and micro-level analysis.

Background of the ResearchBackground of the Research

Blind Blind (2006: 8)(2006: 8)

Bouckaert & Walle Bouckaert & Walle (2003: 335)(2003: 335)

Most of the Korean literature tried to find out dominant factors among different individual experience or status influencing individual perception about government, policy or leadership.

However, longitudinal change of aggregate support for president is more of interest than individual perception toward government or policy at certain cross-sectional time, since it shows change of overall level of support from public as a kind of input rather than simplistic personal response to government according to their private experience or emotion. It is particularly true for countries like Korea where imperial presidency has super power in every part of policy issues.

It is necessary to test whether aggregate support change is influenced by change of macro economic variables or not to find empirical evidence of relationship between them.

Background of the ResearchBackground of the Research

Incumbent president of Korea, MB Lee, was a CEO of famous conglomerate and was believed to bring economic prosperity to Korea.

Different from his predecessor who was immersed in ideological issues, public support to MB seems to be more related with macro economic indices.

However, although Korea is said to successfully overcome worldwide economic crisis among other countries, popularity of this government is relatively low.

Korean situationKorean situation

The purpose of this study is to find out whether change of public support for president is related to macro economic variables or not, and if then, which variables have significant impact on it.

Approval rating changes of President Lee (% of respondents who answered he is performing government affairs well, weekly surveyed by Realmeter for 1,000 people) is used as a surrogate variable of government trust. We assume that it represents both political and social trusts.

For this purpose, we are going to analyze the relationship between time-series variables of macro economic factors representing economy, export, production and consumption (from Financial Statistics

Information System), and approval rating of MB.

Research Question and MethodsResearch Question and Methods

Approval rating Approval rating (%) (%) changes of MB changes of MB (3/2008~1/2012)(3/2008~1/2012)

CorrelationCorrelation

• Unemployment, Export and Bank loan overdue are related with Approval rate; however, sign of unemployment (+) is against expectation.

• As there should be time lag, simple correlation of cross sectional time may not significant.

RegressionRegression

• R2 of regression is quite low, and there seems to be autocorrelation problem since they are time-series data, which undermines significance of regression analysis.

• Unemployment, Export and Production capacity are significant; but sign of unemployment and production capacity are against expectation.

If then X → Y

Y → X

No

relationship

X →

Y, Y → X

thus Granger causality test neededthus Granger causality test needed

Seasonal adjustment was applied to all the variables by X-12 method using E-Views program.

Augmented Dickey Fuller unit root test was applied to all the variables.

From the result, • Amount of orders of construction, Current account, and

Unemployment do not have unit roots and thus were used without differentiation.

• The others have unit roots, and thus Approval rate, CPI, Export, Bank loan overdue are first differentiated;

KOSPI and Production capacity are second differentiated.

Unit Root Test for time-series dataUnit Root Test for time-series data

Granger causality with KOSPIGranger causality with KOSPI

Null Hypothesis: LagsObs

F-Statistic Prob.

D2_KOSPI_SA does not Granger Cause D1_APPRATE_SA

D1_APPRATE_SA does not Granger Cause D2_KOSPI_SA

2 43 1.009380.01811

0.37400.9821

3 42 0.635100.25574

0.59740.8567

4 41 0.336410.84516

0.85140.5071

5 40 0.810570.64097

0.55170.6703

• KOSPI has no Granger causality with Approval rate.

Granger causality with unemploymentGranger causality with unemployment

Null Hypothesis: LagsObs

F-Statistic Prob.

D1_APPRATE_SA does not Granger Cause UNEMP_SA

UNEMP_SA does not Granger Cause D1_APPRATE_SA

2 44 0.835620.78741

0.44120.4621

3 43 0.431151.52253

0.73200.2252

4 42 1.096873.27611

0.37440.0228

5 41 0.559104.42554

0.73030.0039

• Unemployment has Granger causality with Approval rate in 4 and 5 lags.

Granger causality with ExportGranger causality with Export

Null Hypothesis: LagsObs

F-Statistic Prob.

D1_EXPORT_SA does not Granger Cause D1_APPRATE_SA

D1_APPRATE_SA does not Granger Cause D1_EXPORT_SA

2 44 0.368213.06854

0.69440.0579

3 43 0.342021.71502

0.79510.1812

4 42 0.254871.03058

0.90460.4061

5 41 0.215641.95924

0.95310.1138

• Export has no Granger causality with Approval rate.• Approval rate has Granger causality with Export in 2 lags, but non-sense.

Granger causality withGranger causality withCurrent AccountCurrent Account

Null Hypothesis: LagsObs

F-Statistic Prob.

CURACC_SA does not Granger Cause D1_APPRATE_SA

D1_APPRATE_SA does not Granger Cause CURACC_SA

2 44 0.842311.65303

0.43840.2046

3 43 0.308382.41287

0.81920.0826

4 42 0.337030.58677

0.85100.6745

5 41 0.348430.32536

0.87920.8937

• Current Account has no Granger causality with Approval rate.

Granger causality withGranger causality withProduction capacityProduction capacity

Null Hypothesis: LagsObs

F-Statistic Prob.

D2_PRODCAP_SA does not Granger Cause D1_APPRATE_SA

D1_APPRATE_SA does not Granger Cause D2_PRODCAP_SA

2 43 0.128480.44719

0.87980.6427

3 42 2.096401.27360

0.11840.2985

4 41 3.156281.45315

0.02700.2395

5 402.298461.17488

0.07090.3454

• Production capacity of manufacturing industry has Granger causality with Approval rate in 4 lags.

Granger causality withGranger causality withOrders of constructionOrders of construction

Null Hypothesis: LagsObs

F-Statistic Prob.

CONORD_SA does not Granger Cause D1_APPRATE_SA

D1_APPRATE_SA does not Granger Cause CONORD_SA

2 440.144022.69808

0.86630.0799

3 430.918691.40729

0.44160.2565

4 421.103702.22453

0.37120.0877

5 410.880552.58621

0.50610.0464

• Value of construction order has no Granger causality with Approval rate.• Approval rate has Granger causality with ConOrd in 5 lags, but non-sense.

Granger causality with CPIGranger causality with CPI

Null Hypothesis: LagsObs

F-Statistic Prob.

D1_CPI_SA does not Granger Cause D1_APPRATE_SA

D1_APPRATE_SA does not Granger Cause D1_CPI_SA

2 440.060510.37072

0.94140.6926

3 43 2.216570.27550

0.10300.8427

4 42 1.785940.34673

0.15520.8444

5 41 1.243060.43672

0.31400.8193

• CPI has no Granger causality with Approval rate.

Granger causality withGranger causality withBank loan overdueBank loan overdue

Null Hypothesis: LagsObs

F-Statistic Prob.

D1_LOANOVER_SA does not Granger Cause D1_APPRATE_SA

D1_APPRATE_SA does not Granger Cause D1_LOANOVER_SA

2 44 1.059450.25276

0.35640.7779

3 43 0.537540.36170

0.65960.7810

4 42 0.412270.08999

0.79850.9850

5 41 0.705560.08830

0.62380.9935

• Bank loan over has no Granger causality with Approval rate.

Granger causality summariesGranger causality summaries

Variables Granger Causality

KOSPI None

Unemployment Unemployment → AR, 4&5 lags

Export AR → Export, 2 lags

Current Account None

Production Capacity PC→AR, 4 lags

Construction Order AR→CO, 5 lags

CPI None

Loan over None

Impulse response analysisImpulse response analysis

• When Unemployment increases, App. rate increases till 2 months, then decreases till 3 months, and slightly increases before it disappears.

• When Production capacity increases, App. rate decreases till 2 months, then fluctuate till 6 months before it disappears.

= Bizarre conclusion : bad economy leads to higher App. rate and good production leads to lower App. rate ?

Most of macro economic time-series variables representing economy, export, production and consumption do not have Granger causality with approval rate of president Lee.

• Although unemployment and production capacity have Granger causality with approval rate, their impact on approval rate was against our expectation.

From the result, we conclude;• As Lawrence(1998)* acknowledged, due to reduced role of government

in national economy, level of approval rate of president as government trust does not seem to go together with economic ups and downs.

• More empirical evidences are needed to identify whether there are other significant macro economic variables or not.

• Also, meaning of this result is to be further analyzed: does gov’t still needs to consider level of gov’t trust or not in economic policy?; gov’t trust is a valuable index to evaluate gov’t performance or not?

Implication and DiscussionImplication and Discussion

* “Is it Really the Economy Stupid?” in Joseph Nye, Philip D. Zelikow and David C. King, editors, Why People Don’t Trust Government (Cambridge, Mass: Harvard University Press) 1997