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

Kai Jäger

European Journal of Political Economy, 2016, vol. 44, issue C, 79-96

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 (search for similar items in EconPapers)
Date: 2016
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Working Paper: The Role of Regime Type in the Political Economy of Foreign Reserve Accumulation (2016)
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DOI: 10.1016/j.ejpoleco.2016.05.001

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