Political institutions and sovereign credit spreads

Abstract EN

Using a large sample of 35 developing countries for the period 1993–2009, we provide strong robust evidence that political characteristics of the government and more generally the political institutions in place play a significant role in explaining sovereign spreads.

In particular, we find that unconstrained presidential systems increase spreads, while political stability and higher competition for political contest decrease spreads.

In addition, political cohesion (political fragmentation) depresses (increases) spreads.

Instead, political orientation is insignificantly related to spreads although nationalist governments seem to increase them.