A paradox of openness: Democracies, financial integration & crisis

Devin Case-Ruchala ()
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Devin Case-Ruchala: University of North Carolina at Asheville

The Review of International Organizations, 2025, vol. 20, issue 1, No 2, 33-58

Abstract: Abstract Why do democracies experience financial crises more often than non-democracies? Revisiting the 2008 Great Financial Crisis (GFC) as a significant and informative test case, I argue that considering the way domestic institutions inhere in system-level structures is important to explaining crisis susceptibility among democracies since the turn of the twenty-first century. I introduce the mechanism of co-regime financial connections in showing that regime type is an important systematic feature of global financial flows. Employing a latent space network regression model using IMF Coordinated Portfolio Investment Survey (CPIS), I find that the network of cross-border portfolio asset investments is systematically patterned by co-democracy pairs. I then show that this regime-patterned interdependence affects increased financial crisis susceptibility among democracies. My findings build on literature highlighting the interdependence between domestic- and system-level factors and inform an empirical puzzle regarding the prevalence of financial crises among democracies.

Keywords: Political economy of finance; Financial crisis; Financial integration; Banking and finance; Democracies and crisis; Network analysis; Interdependence; Financialization (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s11558-023-09502-7

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