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The Power of Money: Global Capital and Policy Choices in Developing Countries

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  • George E. Shambaugh

Abstract

Extant studies of the impact that international phenomena have on policy choices, and those focused on the political economy of exchange‐rate regimes in particular, are incomplete because they do not consider the effect that reliance on global capital has on the policy preferences of domestic groups. Consequently, they cannot explain why some newly emerging market countries pursue fixed exchange regimes under political and economic conditions—such as recently completed elections, uncompetitive export sectors, and poor national economic performance—in which others have altered their policies. I argue that reliance on different types of foreign capital generates distinct capital‐specific policy preferences. Furthermore, rather than simply mimicking the preferences of foreign investors, domestic groups are likely to promote policies that reduce their capital‐specific risks and vulnerabilities. Panel logit models of exchange‐rate regimes in emerging market countries from 1973 through 2000 demonstrate that higher levels of democracy bolster these effects.

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  • George E. Shambaugh, 2004. "The Power of Money: Global Capital and Policy Choices in Developing Countries," American Journal of Political Science, John Wiley & Sons, vol. 48(2), pages 281-295, April.
  • Handle: RePEc:wly:amposc:v:48:y:2004:i:2:p:281-295
    DOI: 10.1111/j.0092-5853.2004.00070.x
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    1. Guillermo A. Calvo & Leonardo Leiderman & Carmen M. Reinhart, 1993. "Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors," IMF Staff Papers, Palgrave Macmillan, vol. 40(1), pages 108-151, March.
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    5. repec:idb:brikps:77398 is not listed on IDEAS
    6. Calvo, Sara & Reinhart, Carmen, 1996. "Capital flows to Latin America : Is there evidence of contagion effects?," Policy Research Working Paper Series 1619, The World Bank.
    7. Guillermo A. Calvo & Leonardo Leiderman & Carmen M. Reinhart, 1993. "Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors," IMF Staff Papers, Palgrave Macmillan, vol. 40(1), pages 108-151, March.
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    1. Allison F Kingsley & Benjamin A T Graham, 2017. "The effects of information voids on capital flows in emerging markets," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 48(3), pages 324-343, April.
    2. Ghalke, Avinash & Sensarma, Rudra & Chakraborty, Sandip & Kakani, Ram Kumar, 2023. "Stock markets and economic uncertainty: Roles of legislative sessions and coalition strength," European Journal of Political Economy, Elsevier, vol. 78(C).
    3. Guisinger, Alexandra & Singer, David Andrew, 2010. "Exchange Rate Proclamations and Inflation-Fighting Credibility," International Organization, Cambridge University Press, vol. 64(2), pages 313-337, April.
    4. Walter, Stefanie, 2008. "A New Approach for Determining Exchange-Rate Level Preferences," International Organization, Cambridge University Press, vol. 62(3), pages 405-438, July.
    5. Cleeland Knight Sarah, 2010. "Divested Interests: Globalization and the New Politics of Exchange Rates," Business and Politics, De Gruyter, vol. 12(2), pages 1-30, August.

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