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A paradox of openness: Democracies, financial integration & crisis

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  • Devin Case-Ruchala

    (University of North Carolina at Asheville)

Abstract

Why do democracies experience financial crises more often than non-democracies? Revisiting the 2008 Great Financial Crisis (GFC) as a significant and informative test case, I argue that considering the way domestic institutions inhere in system-level structures is important to explaining crisis susceptibility among democracies since the turn of the twenty-first century. I introduce the mechanism of co-regime financial connections in showing that regime type is an important systematic feature of global financial flows. Employing a latent space network regression model using IMF Coordinated Portfolio Investment Survey (CPIS), I find that the network of cross-border portfolio asset investments is systematically patterned by co-democracy pairs. I then show that this regime-patterned interdependence affects increased financial crisis susceptibility among democracies. My findings build on literature highlighting the interdependence between domestic- and system-level factors and inform an empirical puzzle regarding the prevalence of financial crises among democracies.

Suggested Citation

  • Devin Case-Ruchala, 2025. "A paradox of openness: Democracies, financial integration & crisis," The Review of International Organizations, Springer, vol. 20(1), pages 33-58, March.
    • Handle: RePEc:spr:revint:v:20:y:2025:i:1:d:10.1007_s11558-023-09502-7
    DOI: 10.1007/s11558-023-09502-7
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    References listed on IDEAS

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