Political Institutions and Foreign Debt in the Developing World

Abstract

Why did some developing country governments accumulate large foreign debt burdens in the late twentieth century while others did not? I hypothesize that variation in foreign indebtedness is a product of the impact of regime type on government borrowing and investment decisions. Autocratic regimes will borrow more from foreign lenders and invest fewer of these funds in public goods than democratic regimes. Consequently, autocracies are more likely to develop large foreign debt burdens than democracies. I test this hypothesis by estimating error correction models against a sample comprising 78 developing countries between 1976 and 1998. The analysis suggests that autocratic governments accumulated substantially larger foreign debt relative to their national income than democratic governments. The analysis has implications for the likely consequences of contemporary debt relief initiatives.

Debt administration in Small Island‐States

“…However, they are not the only cause. This paper agrees with Oatley (): ‘political institutions have a more systematic impact than the exogenous shocks emphasized by the bad luck hypothesis’ (14). Sovereign nations, even Small Island‐States in the Pacific and Caribbean, can improve their administrative environment.…”

“…Recent cyclones in Dominica (2017), Vanuatu (2015) and Fiji (2016) cost 226, 64 and 30% of GDP, respectively (Government of Dominica, ; IMF, ; International Labour Organisation, ). This ‘bad luck’ creates short‐term increases in foreign debt to GDP ratios (Oatley, , p. 13).…”

“…The more enfranchised a citizenry, the more likely states will invest in public goods with long‐term economic benefits. This includes an understanding that ‘autocracies will borrow more than democracies as long as democracies don't discount the future substantially more than autocracies’ (Oatley, , p. 5).…”

Sovereign Credit and the Fate of Leaders: Reassessing the “Democratic Advantage”

“…While higher borrowing rates may decrease the effectiveness of using credit for leadership survival, expensive borrowing is more effective than not using credit at all. Democracies are less likely to amass large debt burdens because democratic leaders' time horizons create concerns about future tax rates necessary to finance sovereign debt, as shown by Oatley (2010). While Oatley's analysis focuses more on the reasons for borrowing variation, this article concentrates on the effects of borrowing variation on leadership survival.…”

Determinants of developing country debt: the revolving door of debt rescheduling through the Paris Club and export credits

“…Thomas Oatley has found evidence showing that, among developing countries, autocracies have larger debt burdens than democracies, because autocratic regimes are likely to borrow more from foreign lenders. 3 Irfan Nooruddin concludes that oil wealth has a positive relationship with developing country debt, but he finds that this relationship is weakly conditional on the regime type of the country. 4 This paper will add to the literature on determinants of developing country debt by showing how loans and guarantees provided to such countries by export credit agencies (ECAs) have contributed to these countries' debt.…”