Friends for the Benefits: The Effects of Political Ties on Sovereign Borrowing Conditions
28 Pages Posted: 23 Jul 2019 Last revised: 18 Nov 2021
Date Written: July 22, 2019
Do closer political ties with a global superpower improve sovereign borrowing conditions? We use data on voting at the United Nations General Assembly along with foreign aid flows to construct an index of political ties and find evidence that suggests closer political ties leads to both better sovereign credit ratings and lower yields on sovereign bonds. We use heads-of-state official visits and coalition forces troop contributions as exogenous instruments to further strengthen the findings.
Keywords: Political economy, Sovereign borrowing, Foreign aid, UN voting
JEL Classification: F50, F35, H63, G24
Suggested Citation: Suggested Citation