Democracy, capital flows, and odious debt

Thorsten Janus ()

Journal of International Trade & Economic Development, 2009, vol. 18, issue 2, pages 207-234

Abstract: This paper relates democracy, public and private international capital flows, and odious debt. Democracy commits a ruler to pass borrowed funds on to the private sector which builds the country's international collateral, and the consequent rise in the credit ceiling is a Pareto-improvement within a range because the ruler can appropriate a smaller share of the rising loan. However, the ruler may still impose odious debt in the sense that the private sector prefers the country to borrow less. Under certain conditions, a fall in the world interest rate or a rise in productivity growth increases the optimal levels of democracy, borrowing, investment, and welfare. I offer suggestive evidence from a global panel.

Keywords: democracy; capital flows; odious debt; globalization (search for similar items in EconPapers)
Date: 2009

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