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

23 Pages Posted: 11 Mar 2009  

Thomas Stratmann

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

Bernardin Akitoby

International Monetary Fund (IMF) - Fiscal Affairs Department

Multiple version iconThere are 2 versions of this paper

Date Written: February 2009

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: Capital markets, Financial sector, Political economy, Governance, Social policy, Emerging markets, Cross country analysis, Economic models

Suggested Citation

Stratmann, Thomas and Akitoby, Bernardin, The Value of Institutions for Financial Markets: Evidence from Emerging Markets (February 2009). IMF Working Papers, Vol. , pp. 1-21, 2009. Available at SSRN: https://ssrn.com/abstract=1356455

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)

Poschinger Str. 5
Munich, DE-81679
Germany

Bernardin Akitoby

International Monetary Fund (IMF) - Fiscal Affairs Department ( email )

700 19th Street, NW
Washington, DC 20431
United States

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