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Global Capital Cycles and Market Discipline: Perceptions of Developing-Country Borrowers

Published online by Cambridge University Press:  28 September 2021

Alexandra O. Zeitz Open the ORCID record for Alexandra O. Zeitz [Opens in a new window]
Alexandra O. Zeitz*
Affiliation:
Department of Political Science, Concordia University, Montréal, Canada
*
Corresponding author. Email: alexandra.zeitz@concordia.ca
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Abstract

Developing countries are often thought to be particularly exposed to the constraints of global markets. Facing scrutiny from foreign investors, why do developing-country governments enter international bond markets, especially when they can access cheaper finance from international financial institutions? I argue that borrowing governments' perception of market constraints depends on global liquidity. When bond markets are highly liquid, investors become more risk acceptant and governments perceive the political costs of borrowing to be lower, especially compared to the conditionality of concessional loans. I use data on the timing of bond issues and three case studies—Ethiopia, Ghana, and Kenya—to demonstrate that choices to issue debt were shaped by global liquidity. These findings nuance debates about how markets constrain governments, emphasizing that market constraints are conditional on systemic factors, including, global liquidity.

Keywords

government debtglobal capital cyclesgovernment autonomysub-Saharan Africacapital markets
Type
Letter
Information
British Journal of Political Science , Volume 52 , Issue 4 , October 2022 , pp. 1944 - 1953
Copyright
Copyright © The Author(s), 2021. Published by Cambridge University Press

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https://doi.org/10.7910/DVN/BJY2HW
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