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The Value of Institutions for Financial Markets: Evidence from Emerging Markets

Bernardin Akitoby
International Monetary Fund (IMF) - Fiscal Affairs Department

Thomas Stratmann
George Mason University - Buchanan Center Political Economy; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)


December 5, 2008


Abstract:     
This paper investigates the value of political institutions for financial markets, using panel data from emerging market countries. We test the hypothesis that changes in political institutions, such as improvements in democratic rights and increased government accountability, have a direct effect on sovereign interest rate spreads. We find that financial markets value institutions over and above the economic and fiscal outcomes these institutions shape. Democracy and accountability generally lower sovereign spreads, political risk tends to increase them, and financial markets tend to view election years negatively.

Keywords: fiscal policy, sovereign risk, spreads, institutions, emerging markets

JEL Classifications: E62, G15, H39, H63

Working Paper Series

Date posted: December 08, 2008 ; Last revised: October 07, 2009

Suggested Citation

Akitoby, Bernardin and Stratmann, Thomas, The Value of Institutions for Financial Markets: Evidence from Emerging Markets (December 5, 2008). Available at SSRN: http://ssrn.com/abstract=1311875


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Contact Information

Thomas Stratmann (Contact Author)
George Mason University - Buchanan Center Political Economy ( email )
4400 University Drive
Fairfax, VA 22030
United States
703-993-2330 (Phone)
CESifo (Center for Economic Studies and Ifo Institute for Economic Research)
Poschinger Str. 5
DE-81679 Munich Germany
Bernardin Akitoby
International Monetary Fund (IMF) - Fiscal Affairs Department ( email )
700 19th Street, NW
Washington, DC 20431
United States
Feedback to SSRN (Beta)


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