Who Borrows? Political Inclusiveness and the Accumulation of Foreign Debt in Developing Societies

Why do some developing country governments accumulate large foreign debts while others do not? I hypothesize that variation in foreign borrowing is a function of variation in the breadth of public participation in the political process. Specifically, governments borrow less when political institutions enable broad public participation in the political process and encourage the revelation of information about executive behavior. I test this hypothesis against the experience of seventy-eight developing countries between 1976 and 1998. The analysis suggests that governments in societies with broad public participation borrow less heavily than governments in societies with limited public participation. In short, democracies borrowed less heavily than autocracies. The analysis has implications for the likely consequences of the recent debt relief initiative.