The Role of Regime Type in the Political Economy of Foreign Reserve Accumulation

European Journal of Political Economy, Vol. 44, September 2016, pp. 79-96

52 Pages Posted: 30 Nov 2016

See all articles by Kai Jäger

Kai Jäger

King’s College London - Department of Political Economy

Date Written: November 29, 2016

Abstract

Authoritarian regimes have surpassed democracies in foreign reserve accumulation since the Asian Financial Crisis. Two prominent institutionalist theories could explain this diverging trend in reserves: First, the political business cycle theory, suggesting that reserves are reduced before an election. Second, the veto player theory, implying that a high number of veto players increases the de facto independence of central bankers, who are reluctant to invest in reserves. A time-series cross-sectional analysis for up to 182 countries over the period 1990-2013 shows that democratic governments tend to reduce their reserves before elections. While veto players do not affect reserves directly, a high number of veto players tends to limit a political business cycle before an election. Elections and veto players do not have an influence in authoritarian regimes. Election cycles tend to explain why democracies have relatively fallen behind in a period of massive reserve accumulation.

Keywords: Foreign reserves, political business cycle, veto players, central bank independence, authoritarian institutions, international political economy

Suggested Citation

Jäger, Kai, The Role of Regime Type in the Political Economy of Foreign Reserve Accumulation (November 29, 2016). European Journal of Political Economy, Vol. 44, September 2016, pp. 79-96, Available at SSRN: https://ssrn.com/abstract=2877116

Kai Jäger (Contact Author)

King’s College London - Department of Political Economy ( email )

Strand Building
London
United Kingdom

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