Political institutions and debt crises

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Van Rijckeghem, Caroline and Weder, Beatrice (2009) Political institutions and debt crises. Public choice, 138 (3-4). pp. 387-408. ISSN 0048-5829 (Print) 1573-7101 (Online)

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Abstract

This paper shows that political institutions matter in explaining defaults on external and domestic debt obligations. We explore a large number of political and macroeconomic variables using a non-parametric technique to predict safety from default. The advantage of this technique is that it is able to identify patterns in the data that are not captured in standard probit analysis. We find that political factors matter, and do so in different ways for democratic and non-democratic regimes, and for domestic and external debt. In democracies, a parliamentary system or sufficient checks and balances almost guarantee the absence of default on external debt when economic fundamentals or liquidity are sufficiently strong. In dictatorships, high stability and tenure play a similar role for default on domestic debt.
Item Type: Article
Uncontrolled Keywords: Sovereign debt crises; Political institutions; Early warning systems
Divisions: Faculty of Arts and Social Sciences
Depositing User: Caroline Van Rijckeghem
Date Deposited: 10 Apr 2009 17:16
Last Modified: 26 Apr 2022 08:27
URI: https://research.sabanciuniv.edu/id/eprint/11452

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