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The value of institutions for financial markets: evidence from emerging markets

  • Bernardin Akitoby

    ()

  • Thomas Stratmann

    ()

This paper investigates the value of political institutions for financial markets, using panel data from emerging market countries. We test the hypothesis that changes in political institutions, such as improvements in democratic rights and increased government accountability, have a direct effect on sovereign interest rate spreads. We find that financial markets value institutions over and above the economic and fiscal outcomes these institutions shape. Democracy and accountability generally lower sovereign spreads, political risk tends to increase them, and financial markets tend to view election years negatively.

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File URL: http://hdl.handle.net/10.1007/s10290-010-0073-7
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Article provided by Springer in its journal Review of World Economics.

Volume (Year): 146 (2010)
Issue (Month): 4 (December)
Pages: 781-797

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Handle: RePEc:spr:weltar:v:146:y:2010:i:4:p:781-797
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  13. Eichengreen, Barry & Mody, Ashoka, 2000. "Lending booms, reserves and the sustainability of short-term debt: inferences from the pricing of syndicated bank loans," Journal of Development Economics, Elsevier, vol. 63(1), pages 5-44, October.
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  25. repec:hrv:faseco:3353756 is not listed on IDEAS
  26. Olivier Blanchard & Roberto Perotti, 2002. "An Empirical Characterization Of The Dynamic Effects Of Changes In Government Spending And Taxes On Output," The Quarterly Journal of Economics, MIT Press, vol. 117(4), pages 1329-1368, November.
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  28. North, Douglass C. & Weingast, Barry R., 1989. "Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England," The Journal of Economic History, Cambridge University Press, vol. 49(04), pages 803-832, December.
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  30. Bernardin Akitoby & Thomas Stratmann, 2006. "Fiscal Policy and Financial Markets," IMF Working Papers 06/16, International Monetary Fund.
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