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Friends for the benefits: The effects of political ties on sovereign borrowing conditions

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  • Ambrocio, Gene
  • Hasan, Iftekhar

Abstract

Do closer political ties with a global superpower improve sovereign borrowing conditions? We use data on voting at the United Nations General Assembly along with foreign aid flows to construct an index of political ties and find evidence that suggests closer political ties leads to both better sovereign credit ratings and lower yields on sovereign bonds. We use heads-of-state official visits and coalition forces troop contributions as exogenous instruments to further strengthen the findings.

Suggested Citation

  • Ambrocio, Gene & Hasan, Iftekhar, 2019. "Friends for the benefits: The effects of political ties on sovereign borrowing conditions," Bank of Finland Research Discussion Papers 13/2019, Bank of Finland.
    • Handle: RePEc:zbw:bofrdp:rdp2019_013
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    More about this item

    JEL classification:

    • F50 - International Economics - - International Relations, National Security, and International Political Economy - - - General
    • F35 - International Economics - - International Finance - - - Foreign Aid
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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