The Role of Regime Type in the Political Economy of Foreign Reserve Accumulation

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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 languageEnglish
Pages (from-to)79-96
Number of pages18
JournalEuropean Journal of Political Economy
Early online date7 May 2016
Publication statusPublished - 1 Sept 2016


  • Foreign reserves
  • Political business cycle
  • Veto players
  • Central bank independence
  • Authoritarian institutions
  • International political economy


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