How does external debt impact democratization? Evidence from developing countries
AbstractIn this paper we empirically discuss whether or not external debt affects country’s governance. Indeed, indebted countries need some political governance reforms in order to send out a positive signal to international financial community and investors; and so improving business climate. However, external debt reduces their flexibility and ability to address associated costs to political governance. Our study focuses on the period 1985-2011 and spans 103 developing countries. To deal with endogeneity issue, we first lag external debt by one year and second propose two-step tobit estimator by instrumenting external debt-to-GDP ratio with real effective exchange rate. Even controlling for various conventional determinants of democratic transitions, we find that external debt constraints indebted countries to move up democracy scale but incite governments to improve investment profile and therefore improving business climate. Furthermore, Heavily Indebted Poor Countries (HIPC) initiative and International Monetary Fund (IMF) programs dampen the negative effect of debt on democratic transitions.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by CERDI in its series Working Papers with number 201408.
Date of creation: 2014
Date of revision:
external debt; governance; democracy; democratic transitions; crisis; investment;
Find related papers by JEL classification:
- Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Social and Economic Stratification
- P52 - Economic Systems - - Comparative Economic Systems - - - Comparative Studies of Particular Economies
- P51 - Economic Systems - - Comparative Economic Systems - - - Comparative Analysis of Economic Systems
- H10 - Public Economics - - Structure and Scope of Government - - - General
- O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
- B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-04-18 (All new papers)
You can help add them by filling out this form.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Vincent Mazenod).
If references are entirely missing, you can add them using this form.