Contingent Advantage? Sovereign Borrowing, Democratic Institutions and Global Capital Cycles

AbstractHow do domestic and global factors shape governments’ capacity to issue debt in primary capital markets? Consistent with the ‘democratic advantage’, we identify domestic institutional mechanisms, including executive constraints and policy transparency, that facilitate debt issuance rather than electoral events. Most importantly, we argue that the democratic advantage is contingent: investors’ attention to domestic politics varies with conditions in global capital markets. When global financial liquidity is low, investors are risk-averse, and political risk constrains governments’ capacity to borrow. But when global markets are flush, investors are risk-tolerant and less sensitive to political risk. We support our argument with new data on 245,000 government bond issues in primary capital markets – the point at which governments’ costs of market access matter most – for 131 sovereign issuers (1990–2016). In doing so, we highlight the role of systemic factors, which are under-appreciated in much ‘open economy politics’ research, in determining access to capital markets.

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Global Capital Cycles and Market Discipline: Perceptions of Developing-Country Borrowers

British Journal of Political Science ◽

10.1017/s0007123421000405 ◽

2021 ◽

pp. 1-10

Author(s):

Alexandra O. Zeitz

Keyword(s):

Developing Country ◽

Global Markets ◽

The Political ◽

Bond Markets ◽

International Financial Institutions ◽

Global Capital ◽

Political Costs ◽

Bond Issues ◽

Systemic Factors ◽

Global Liquidity

Abstract Developing countries are often thought to be particularly exposed to the constraints of global markets. Facing scrutiny from foreign investors, why do developing-country governments enter international bond markets, especially when they can access cheaper finance from international financial institutions? I argue that borrowing governments' perception of market constraints depends on global liquidity. When bond markets are highly liquid, investors become more risk acceptant and governments perceive the political costs of borrowing to be lower, especially compared to the conditionality of concessional loans. I use data on the timing of bond issues and three case studies—Ethiopia, Ghana, and Kenya—to demonstrate that choices to issue debt were shaped by global liquidity. These findings nuance debates about how markets constrain governments, emphasizing that market constraints are conditional on systemic factors, including, global liquidity.

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The Dollar, Bank Leverage, and Deviations from Covered Interest Parity

American Economic Review: Insights ◽

10.1257/aeri.20180322 ◽

2019 ◽

Vol 1 (2) ◽

pp. 193-208 ◽

Cited By ~ 19

Author(s):

Stefan Avdjiev ◽

Wenxin Du ◽

Cathérine Koch ◽

Hyun Song Shin

Keyword(s):

Capital Markets ◽

Risk Taking ◽

Bank Lending ◽

Global Capital ◽

Cross Border ◽

Covered Interest Parity ◽

Interest Parity ◽

Triangular Relationship

We document a triangular relationship in that a stronger dollar goes hand in hand with larger deviations from covered interest parity (CIP) and contractions of cross-border bank lending in dollars. We argue that underpinning the triangle is the role of the dollar as a key barometer of risk-taking capacity in global capital markets. (JEL F23, F31, G15, G21)

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Regulating the Sovereign Wealth Funds

International Studies Review ◽

10.1163/2667078x-00902005 ◽

2008 ◽

Vol 9 (2) ◽

pp. 63-86

Author(s):

Bliss Burdett Pak

Keyword(s):

Capital Markets ◽

Free Market ◽

State Level ◽

Investment Fund ◽

Sovereign Wealth Funds ◽

Global Capital ◽

Private Sector Investment ◽

State Models ◽

Regulatory Analysis

This paper examines the new policy issues surrounding the rise of the “sovereign wealth funds” in global capital markets. A profound and newly significant incidence of globalization, the role of foreign governments as capital providers in nominally capitalistic, free-market economies is disrupting basic principals and assumptions regarding the role of private and public markets and their regulators. This paper examines the potential for appropriate regulatory schemes co channel these wealth pools in economically productive and apolitically-motivated directions, with the goal of permitting them to perform the functions for which they were established: the preservation and prudential investment of the vase wealth of nations. This regulatory analysis proceeds along three lines: (i) first, a model for corporate governance of a "typical" sovereign fund is proposed, based on the established models of private sector investment fund schemes; (ii) second, a review of host state models and current proposals for foreign investment regulation is undertaken, focusing on the special scrutiny given or proposed co be made available for investments by state-owned funds; and (iii) finally, an assessment is offered regarding international organizations' potential role as venues for cooperation and coordination of the newest and largest players in global capital markets. Though the sovereign wealth funds have made significant gains in establishing their credibility as welcome and responsible providers of global capital through their voluntary and independent actions, this paper concludes chat both state-level regulatory accommodation and international cooperation through established economic organizations such as the OECD and IMF offer significant potential benefits to both the funds and the national markets (and target companies therein) if appropriately designed. At a minimum, national and international treatment of the special nature of the sovereign wealth funds may enable capital markets to remain relatively open by specifically addressing the sources of market participants’ (and politicians’) fears of abuse, thereby strengthening the structures chat support the global free movement of capital and channel it co its highest and best use.

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The New Role for the World Bank

The Journal of Economic Perspectives ◽

10.1257/jep.30.1.53 ◽

2016 ◽

Vol 30 (1) ◽

pp. 53-76 ◽

Cited By ~ 22

Author(s):

Michael A. Clemens ◽

Michael Kremer

Keyword(s):

World Bank ◽

Capital Markets ◽

Private Capital ◽

International Capital ◽

International Capital Markets ◽

Global Capital ◽

The World Bank ◽

The World ◽

Private Capital Flows

The World Bank was founded to address what we would today call imperfections in international capital markets. Its founders thought that countries would borrow from the Bank temporarily until they grew enough to borrow commercially. Some critiques and analyses of the Bank are based on the assumption that this continues to be its role. For example, some argue that the growth of private capital flows to the developing world has rendered the Bank irrelevant. However, we will argue that modern analyses should proceed from the premise that the World Bank’s central goal is and should be to reduce extreme poverty, and that addressing failures in global capital markets is now of subsidiary importance. In this paper, we discuss what the Bank does: how it spends money, how it influences policy, and how it presents its mission. We argue that the role of the Bank is now best understood as facilitating international agreements to reduce poverty, and we examine implications of this perspective.

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Same same, but different: Varieties of capital markets, Chinese state capitalism and the global financial order

Competition & Change ◽

10.1177/1024529420964723 ◽

2020 ◽

pp. 102452942096472

Author(s):

Johannes Petry

Keyword(s):

Capital Markets ◽

Empirical Investigation ◽

Institutional Logics ◽

Global Markets ◽

Global Finance ◽

State Capitalism ◽

Global Capital ◽

Institutional Settings ◽

Securities Exchanges

Since 2009, China’s capital markets have developed and internationalized to an unprecedented degree, which has contributed to a lot of debates on China’s rise and its implications for the global financial order. Contributing to these debates, this article analyses the development of capital markets in China and their integration into global finance between 2009 and 2019, focusing on three aspects: how Chinese capital markets are developing domestically; how they are integrating with global markets; and how Chinese capital markets are internationalizing, i.e. expanding abroad. Thereby, the article analyses the crucial role of securities exchanges who as organizers of capital markets are powerful actors that exercise considerable influence over these markets and their development. This empirical investigation reveals that while they share some characteristics with ‘global’ capital markets, Chinese capital markets function quite differently. The article argues that China’s state-owned exchanges facilitate the development of state-capitalist capital markets – capital markets that follow an institutional logic derived from China’s state-capitalist economic system. Rather than giving in to a neoliberal rulebook, China’s capital markets represent an alternative to, resist and challenge the norms, principles and procedures of the contemporary global financial order. While different capital markets share some characteristics, they are institutionally embedded, and these institutional settings facilitate different institutional logics that underpin and inform the functioning of markets. Instead of viewing capital markets as homogeneous entities, the article therefore proposes to investigate a ‘varieties of capital markets’ that are shaped by different institutional logics.

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The Role of Global Capital Markets

The Capital Markets ◽

10.1002/9781119220589.ch2 ◽

2017 ◽

pp. 20-51

Author(s):

Christian Edelmann ◽

Shasheen Jayaweera

Keyword(s):

Capital Markets ◽

Global Capital

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The Link between NAV Spreads and Returns of Real Estate Stocks – Evidence From Global Capital Markets

Proceedings of the 21st Annual European Real Estate Society Conference ◽

10.15396/eres2014_157 ◽

2014 ◽

Keyword(s):

Real Estate ◽

Capital Markets ◽

Global Capital

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The role of personality in shaping pandemic response: Systemic sociopolitical factors drive country differences

10.31234/osf.io/m9vj2 ◽

2020 ◽

Author(s):

Meghan Siritzky ◽

David M Condon ◽

Sara J Weston

Keyword(s):

Individual Differences ◽

Big Five ◽

Public Health Research ◽

Cross Cultural ◽

Economic Factors ◽

State Fragility ◽

Systemic Factors ◽

Pandemic Response ◽

The Relationship

The current study utilizes the current COVID-19 pandemic to highlight the importance of accounting for the influence of external political and economic factors in personality public-health research. We investigated the extent to which systemic factors modify the relationship between personality and pandemic response. Results shed doubt on the cross-cultural generalizability of common big-five factor models. Individual differences only predicted government compliance in autocratic countries and in countries with income inequality. Personality was only predictive of mental health outcomes under conditions of state fragility and autocracy. Finally, there was little evidence that the big five traits were associated with preventive behaviors. Our ability to use individual differences to understand policy-relevant outcomes changes based on environmental factors and must be assessed on a trait-by-trait basis, thus supporting the inclusion of systemic political and economic factors in individual differences models.

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