Banking on Democracy: The Political Economy of International Private Bank Lending in Emerging Markets

International Political Science Review, Vol. 29, No. 2, pp. 215-246, March 2008

32 Pages Posted: 12 Nov 2008

See all articles by Javier Rodriguez

Javier Rodriguez

Grupo Banco Bilbao Vizcaya Argentaria (BBVA)

Javier Santiso

ESADE Business School

Date Written: March 10, 2008

Abstract

Private capital movements have risen in recent decades, and bank flows have been part of this story. Some empirical studies have analysed the political drivers of private international liquidity, but paradoxically very few have looked at the political economy of bank flows. Even less research exists on the role of politics in explaining cross-border banking movements towards emerging democracies. The present study links compiled indicators on democracy, policy uncertainty and political stability to international bank lending flows from data developed by the BIS. It provides an empirical investigation of the political economy of cross-border bank flows to emerging markets and tries to answer two questions. Do bankers tend to prefer emerging democracies? Do they reward democratic transitions as well as policy and political stability? One of the major findings is that politics do matter, and international banks tend to have political preferences; annual growth in bank flows usually booms in the three years following a democratic transition, especially in Latin America.

Keywords: capital flows, banks, democracy and emerging markets

JEL Classification: F34, F21, G21, K00

Suggested Citation

Rodriguez, Javier and Santiso, Javier, Banking on Democracy: The Political Economy of International Private Bank Lending in Emerging Markets (March 10, 2008). International Political Science Review, Vol. 29, No. 2, pp. 215-246, March 2008, Available at SSRN: https://ssrn.com/abstract=1298964

Javier Rodriguez

Grupo Banco Bilbao Vizcaya Argentaria (BBVA) ( email )

Paseo de Recoletos, 10
Madrid
United States

Javier Santiso (Contact Author)

ESADE Business School ( email )

Mateo Inurria 27
Madrid, 28036
Spain

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