Abstract

Leftist governments in the developing world are perceived as risky for private investment because of their greater policy uncertainty and more frequent property rights infringement. Focusing on government bond markets, this dissertation empirically examines whether leftist governments are penalized in international markets and whether political institutions that are believed to provide policy credibility can help these governments gain investor confidence. Specifically, I focus on the effects of two domestic political institutions and one international institution: democracy, veto players, and the International Monetary Fund (IMF) conditionality.

Using selection-corrected, time-series-cross-sectional statistical analyses of sovereign credit ratings data of more than 100 countries from 1980 to 2004, I find that democracy and IMF conditionality help leftist governments in developing countries improve investor confidence. Increasing the number of veto players raises sovereign credit ratings, but only up to a certain point, after which the relationship turns negative.

My dissertation contributes to the fields of international political economy and comparative politics by enriching the sparse literature on the political economy of government bond markets. Furthermore, the findings of my research carry important policy implications for developing countries in building and selecting domestic and international institutions to create a secure investment environment.