Political Institutions and Sovereign Credit Spreads

Narjess Boubakri (), Jean-Claude Cosset and Houcem Smaoui
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Narjess Boubakri: American University of Sharjah

No 647, Working Papers from Economic Research Forum

Abstract: Using a large sample of 35 developing countries for the period 1993–2009, we provide strong robust evidence that political characteristics of the government and more generally the political institutions in place play a significant role in explaining sovereign spreads. In particular, we find that unconstrained presidential systems increase spreads, while political stability and higher competition for political contest decrease spreads. In addition, political cohesion (political fragmentation) depresses (increases) spreads. Instead, political orientation is insignificantly related to spreads although nationalist governments seem to increase them.

Pages: 26
Date: 2011-01-12, Revised 2011-01-12
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Published by The Economic Research Forum (ERF)

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