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Global Credit Markets, Political Violence, and Politically Sustainable Risk Premia

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  • Terrence Chapman
  • Eric Reinhardt

Abstract

How do international financial conditions affect civil unrest? Existing studies examine the domestic economic roots of political violence but say little about the role of external financial conditions. We explore the interactions between international lending, government policy, and domestic unrest. In particular, we note that because of sovereign risk and defensive lending dynamics, credit ratings and interest rate premia are endogenous to expectations about civil violence. We test these claims using instrumental variables techniques and daily data on sovereign bond yield spreads, credit ratings, and episodes of civil violence in 59 developing countries from 1990 through 2004. After correcting for endogeneity, we find that exogenous increases in the price of foreign capital are robustly associated with increased odds of civil conflict. Primary commodity dependence, low economic growth, and poverty can also increase the odds of civil conflict by reducing access to foreign capital.

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  • Terrence Chapman & Eric Reinhardt, 2013. "Global Credit Markets, Political Violence, and Politically Sustainable Risk Premia," International Interactions, Taylor & Francis Journals, vol. 39(3), pages 316-342, July.
  • Handle: RePEc:taf:ginixx:v:39:y:2013:i:3:p:316-342
    DOI: 10.1080/03050629.2013.782302
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    Cited by:

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    3. Christina L. Davis & Krzysztof J. Pelc, 2017. "Cooperation in Hard Times," Journal of Conflict Resolution, Peace Science Society (International), vol. 61(2), pages 398-429, February.
    4. Andrey Korotayev & Ilya Vaskin & Stanislav Bilyuga & Alina Khokhlova & Anastasia Baltach & Eugeny Ivanov & Kira Meshcherina, 2017. "Economic Development and Sociopolitical Destabilization: A Re-Analysis," HSE Working papers WP BRP 46/PS/2017, National Research University Higher School of Economics.

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