The arrival of Prince George this week has caused some to proclaim the economic benefits of royal births. Costas Milas tests this claim and finds no statistical significance. Following royal births, UK growth strengthens solely due to economic factors.
The birth of the royal baby on Monday was followed by reasonably good news on the economy. Indeed, according to the Office for National Statistics (ONS), the UK economy grew in the second quarter of 2013 by 0.6% (on a quarterly basis) and by 1.4% on an annual basis. Although a “long shot”, it is tempting to assume that there is a positive correlation between royal births and economic performance on the grounds that royal births cheer up the nation and this, in turn, is reflected in stronger economic performance. Whether this makes sense or not, it is still a hypothesis that can be tested using historical data!
In 1926, the UK economy contracted by 3.7%. That was the birth year of (Queen) Elizabeth II. Contraction was followed, in 1927, by an impressive economic expansion of 8%. Prince Charles was born in 1948. During that year, the UK economy grew by 3.1%. UK growth increased further to 3.7% in 1949. Prince William was born in 1982. During that year, the UK economy grew at 1.5% and then much further at 3.55% in 1983.
As it happens, we can test whether royal births have an impact on the economy over and above the impact of the “usual suspects” such as international demand, monetary policy and financial crisis incidences. This is an exciting exercise which is both fun (whether one supports the Royal family or is simply a Republican) and statistically meaningful. To do this, I rely on the “correct” historical database of Prof Carmen Reinhart and Prof Kenneth Rogoff (available here). I collect annual data over the last 120 years and then estimate the impact of the birth-dates of Queen Elizabeth II, Prince Charles and Prince William on UK GDP growth over and above (a) the positive impact of international demand (which I proxy by US growth), (b) the negative impact of monetary policy tightening (which I proxy by the difference between the Bank of England policy interest rate and Consumer Price Inflation) and (c) the negative impact of financial crisis events throughout the world. My findings are summarised as following:
- A joint test of the statistical significance of the three royal births suggests no significant impact on UK performance. Hence, the three royal births have made, at least initially, no economic impression.
- However, as I noted earlier on, UK economic performance accelerated significantly the year that followed each of the three royal births. Was this a coincidence or not? In other words, had a pick-up in economic growth anything to do with the three royal births? I test this additional hypothesis based on the same model which conditions on the “usual suspects” mentioned above. Even in this case, I still fail to find any significant royal effect on the economy.
All the above suggest that following royal births, UK growth strengthens solely due to economic factors. Hence, if history is to repeat itself, 2014 will be a much better year than 2013. This should please everybody, whether a supporter of the Royal family or a Republican!
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About the Author
Costas Milas is Professor of Finance at the University of Liverpool Management School; email (firstname.lastname@example.org).