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Democracy and Credit “Democracy Doesn`t Come Cheap†But At Least Credit to Its Corporations Will Be

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  • Ongena, Steven
  • Delis, Manthos
  • Hasan, Iftekhar

Abstract

Does democratization reduce the cost of credit? Using global syndicated loan data from 1984 to 2014, we show that democratization has a sizeable negative effect on loan spreads: a one point increase in the zero-to-ten Polity IV index of democracy shaves on average 21 basis points off spreads. Reversals to autocracy hike spreads more strongly. Our results are robust to the comprehensive inclusion of relevant controls, to the instrumentation with regional waves of democratization, and to a battery of sensitivity tests. We thus highlight the lower cost of loans as one relevant mechanism through which democratization may affect economic development.

Suggested Citation

  • Ongena, Steven & Delis, Manthos & Hasan, Iftekhar, 2017. "Democracy and Credit “Democracy Doesn`t Come Cheap†But At Least Credit to Its Corporations Will Be," CEPR Discussion Papers 11840, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:11840
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    References listed on IDEAS

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    Cited by:

    1. Delis, Manthos & Politsidis, Panagiotis & Sarno, Lucio, 2018. "Foreign currency lending," MPRA Paper 88197, University Library of Munich, Germany.

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