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.
Original language | English |
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Pages (from-to) | 79-96 |
Number of pages | 18 |
Journal | European Journal of Political Economy |
Volume | 44 |
Early online date | 7 May 2016 |
DOIs | |
Publication status | Published - 1 Sept 2016 |
Keywords
- Foreign reserves
- Political business cycle
- Veto players
- Central bank independence
- Authoritarian institutions
- International political economy