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

Published online by Cambridge University Press:  11 December 2019

Cameron Ballard-Rosa Open the ORCID record for Cameron Ballard-Rosa [Opens in a new window] ,
Layna Mosley  and
Rachel L Wellhausen
Cameron Ballard-Rosa*
Affiliation:
UNC Chapel Hill, NC
Layna Mosley
Affiliation:
UNC Chapel Hill, NC
Rachel L Wellhausen
Affiliation:
University of Texas at Austin, TX
*
*Corresponding author: Email: cambr@email.unc.edu
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Abstract

How 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.

Keywords

capital marketsgovernment debtbond issuesdemocratic advantagepolitical risk
Type
Article
Information
British Journal of Political Science , Volume 51 , Issue 1 , January 2021 , pp. 353 - 373
Copyright
Copyright © Cambridge University Press 2019

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