Democratic Banking Crises and Authoritarian Sovereign Default

• In Event: Politics of Sovereign Borrowing

Abstract

Existing literature in international political economy contends that there is a “democratic advantage” in sovereign credit, emphasizing the institutional advantages of democracies in their credibility to repay debt in the long run. This article complicates this interpretation, arguing that almost all of increased rate of authoritarian default is the result of contagion from international financial crises that primarily spread from democratic countries. Using data from 200 years of banking crises and sovereign default, this article shows a significant interaction between international financial crisis and authoritarianism in predicting sovereign default. These findings present an important alternative understanding of the democratic advantage, framing regime differences in sovereign credit as more contingent and interdependent than most existing scholarship recognizes. The indirect financial effects from democratic countries on authoritarian countries is an important contributing factor to the democratic advantage.

Author

• Erik Peinert, Boston University