tailieunhanh - Diaspora Bonds and Cross-Border Capital

On the one hand, democratic institutions usually have a larger number of checks and balances than autocracies which makes rapid and dramatic policy reversals difficult or impossible, and which, in turn, provides investors with relatively stable expectations (Hiensz 2000). Another stream of literature argues that democratic leaders face large “audience costs” which translate into negative electoral consequences if they renege on publicly made commitments (Jensen 2003). Regardless of whether democratic institutions provide checks and balances or audience costs, the implication is that democracies should attract more international investment than autocracies. While the democratic institutions literature focuses on the. | Diaspora Bonds and Cross-Border Capital1 David Leblang Department of Political Science University of Colorado leblang@ March 21 2008 While it is generally recognized that we live in an increasingly globalized world it is also abundantly evident that the effects of globalization are unequal. Despite the enormous size of global capital markets as evidenced by figure 1 peoples states and economies have varying degrees of access to international financial markets. The ability of public and private entities to attract global investment has dramatic consequences for growth development and equality. And it is why scholars have devoted significant energies to understanding the factors that lead capital to flow from one country to another. A dominant line of thinking holds that institutional differences across countries explains why some countries are able borrow internationally while others are not. Countries with institutions that enable policy makers to demonstrate a credible commitment to stable and liberal economic policies so the argument goes are able to attract investment because investors envision a lower risk of expropriation Alfaro Kelemli-Ozcan Volosovych 2006 Buthe Milner 2006 Jensen 2003 Pevehouse 2002 . It is difficult to overstate the importance of credible commitments. The institutional story however only gets us so far in understanding the pattern of international investment. Even 1 I am grateful to Zane Kelly and Jessica Teets for outstanding research assistance and to Lee Alston Ben Ansell Andy Baker Bernd Beber William Bernhard David Brown Steve Chan Rafaela Dancygier Jennifer Fitzgerald John Freeman Jude Hays Nathan Jensen Joseph Jupille Moonhawk Kim Robert McKnown Tom Pepinsky Kathryn Sikkink David Singer Michael Tomz and Jennifer Wolak for helpful comments. I also thank Moonhawk Kim for sharing his bilateral trade and preferential trade agreements data. 1 countries with high quality institutions or that are members of a large number of .