Social Polarization, Political Institutions, and Country Creditworthiness

36 Pages Posted: 20 Apr 2016

See all articles by Philip Keefer

Philip Keefer

Inter-American Development Bank

Stephen Knack

World Bank - Development Research Group (DECRG)

Date Written: October 2002

Abstract

The literature argues that the presence of multiple veto players (government decisionmakers) with polarized interests increases the credibility of sovereign commitments, but reduces the ability of governments to adjust policies in the event of exogenous shocks that jeopardize their ability to honor their commitments. In the case of sovereign lending, if the first effect prevails, countries would be regarded as more creditworthy; if the second, less.

Keefer and Knack address two issues. First, using measures of country creditworthiness, they ask whether the net effect of multiple veto players is positive or negative. Second, though, the authors go beyond the existing literature to argue that the net effect of multiple veto players depends on the nature of social polarization in a country. In particular, they argue that political competition is fundamentally different in countries exhibiting ethnic polarization than in countries polarized according to income or wealth. The evidence supports the prediction that multiple veto players matter more when countries are more ethnically polarized, but less when income inequality is greater.

This paper - a joint product of the Investment Climate and Public Services Teams, Development Research Group - is part of a larger effort in the group to understand the interaction of social polarization and institutions.

Suggested Citation

Keefer, Philip and Knack, Stephen, Social Polarization, Political Institutions, and Country Creditworthiness (October 2002). World Bank Policy Research Working Paper No. 2920. Available at SSRN: https://ssrn.com/abstract=636282

Philip Keefer (Contact Author)

Inter-American Development Bank ( email )

1300 New York Ave., NW
Washington, DC 20577
United States
202-623-1961 (Phone)

Stephen Knack

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States
202-458-9712 (Phone)

HOME PAGE: http://econ.worldbank.org/staff/sknack

Register to save articles to
your library

Register

Paper statistics

Downloads
149
Abstract Views
1,579
rank
196,432
PlumX Metrics