Research Shows Women Leaders Bring Higher GDP

By Economic IndicatorsFOXBusiness

As Janet Yellen rewrites history as the first female Fed chief, many are wondering how effective she will be at running the world’s most powerful central bank.

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Recent research suggests Yellen may actually have a leg up on her male counterparts for the chairperson position, which requires someone who thrives at consensus building, grasping complexity and dealing with increasingly-divided politicians.

According to a paper published late last year in the Journal of International Affairs, the presence of a female national leader in ethnically diverse nations is correlated with a 6.9% increase in GDP growth versus having a male leader.

“Women may be seen as more effective in difficult situations that require more cooperative, inclusionary practices where they can then use their typically more democratic style to navigate,” the authors wrote.

Yellen, who was nominated by President Obama to replace Ben Bernanke last year, drew rave reviews from some market participants who watched her debut performance testifying in front of lawmakers this week.

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Wall Street greeted Yellen with a 193-point rally on the Dow Industrials, their best performance in almost two months.

“If you think about Republicans and Democrats as providing a source of diversity, having a female Fed chief may inspire people to figure out how to cooperate. She may behave in ways that will engender more rallying behind the decisions that are made,” said Katherine Phillips, a professor at Columbia Business School who co-authored the paper with Northwestern University professors Susan Perkins and Nicholas Pearce.

Dearth of Female Leaders

While the mere nomination of Yellen is evidence of the strides women have made in achieving high office, it’s clear she is in the minority.

By analyzing national leaders between 1950 and 2004, the paper found that women held the office of president or prime minister just 2.22% of all years in 188 countries examined. Examples of famous female national leaders include former British Prime Minister Margaret Thatcher, Israel’s Golda Meir and Benazir Bhutto in Pakistan.

The least developed nations, including the likes of Haiti and Senegal, were led by females only about 1% of the time, while more developed nations such as Israel and New Zealand had female national leaders around 4% of the time.

Of course, the U.S. has never had a female president, although Hillary Clinton came very close in 2008 and recent polls show her as the favorite to win the White House in 2016.

Highly-diverse countries like the U.S. have been proven to be far more difficult to govern due to conflicts of interest between ethnic groups, a lack of inclusiveness and policy failure that leads to underdevelopment. Previous research shows high levels of ethnic diversity are associated with a 2% decline in GDP growth.

“People forget that diversity is quite complicated and can come with a lot of conflict, both at the organization level and the corporate level,” said Phillips.

Stronger Growth Under Female Leaders

The paper found “no significant differences” in overall GDP growth between male and female leaders.

However, it was a different story when the authors looked specifically at diverse countries. The research showed that in highly fractionalized countries, female leadership is correlated with 6.6% GDP growth in the subsequent year, compared with less than 1% for male leaders.

“Our findings suggest that national environments that have perceived needs for leadership characteristics and role expectations, such as improving perceived inequities, empowering others, and inclusiveness, are environments in which female leaders are most effective,” the paper concludes.

David Becher, a professor at Drexel University, expressed skepticism about the findings given the fact that not all countries that are going to elect a woman are the same.

“Is it the woman that matters or is it other aspects of the country?” he asked.

Susan Stautberg, CEO and co-founder of WomenCorporateDirectors, said the findings show that “when the going gets tough, whether it’s in Africa or Iceland, there is a perception that women will listen, learn and take whatever moves are necessary.”

'Tone of Civility and Focus'

The paper doesn’t draw any conclusions about why female national leaders may enjoy stronger economic growth.

Phillips pointed to evidence that diversity changes the way people act.

“There are certain things you won’t do when your mom is there,” she said. “If you put a woman in the room, men start to behave differently. The mere presence of diversity makes people focus on the task at hand and changes the tone.”

Applying the research to more current events, one could argue Yellen may be better positioned to rise above the partisan fray in Washington that has hurt the economy and caused countless manufactured crises.

A female Fed chief may also have an advantage in forging consensus at the often-divided central bank as it continues unwinding its controversial bond-buying program.

“Having Janet Yellen in that position may bring a tone of civility and focus that could help the Fed make even better decisions,” said Phillips.

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