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Democracy, capital flows, and odious debt

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  • Thorsten Janus

Abstract

This paper relates democracy, public and private international capital flows, and odious debt. Democracy commits a ruler to pass borrowed funds on to the private sector which builds the country's international collateral, and the consequent rise in the credit ceiling is a Pareto-improvement within a range because the ruler can appropriate a smaller share of the rising loan. However, the ruler may still impose odious debt in the sense that the private sector prefers the country to borrow less. Under certain conditions, a fall in the world interest rate or a rise in productivity growth increases the optimal levels of democracy, borrowing, investment, and welfare. I offer suggestive evidence from a global panel.

Suggested Citation

  • Thorsten Janus, 2009. "Democracy, capital flows, and odious debt," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 18(2), pages 207-234.
    • Handle: RePEc:taf:jitecd:v:18:y:2009:i:2:p:207-234
    DOI: 10.1080/09638190902916485
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