This study examines the effect of legal central bank independence on inflation in developing countries. In spite of the policy consensus suggesting that central bank independence is an effective tool to control inflation, the evidence is still limited, particularly for developing countries. Using a novel dataset, we analyze the effect of central bank independence on inflation for a sample of 118 developing countries between 1980 and 2013. We find that higher central bank independence is associated with lower inflation rates. This effect on inflation is stronger the more democratic a country is, but it is also present in non-democratic countries. Our results are robust to different specifications and methodologies. Furthermore, we find that all dimensions included in the measurement of central bank independence (objectives, personnel, policy, and financial independence) contribute to curb inflation. Our results shed light on which types of reforms may be more effective at fighting inflation in developing countries.
In dominant party regimes, party cadres' participation in decision-making constrains dictators from arbitrarily changing policy. Party based regimes are also better at mobilizing supporters in exchange for extensive patronage. The conventional wisdom is that these two mechanisms work together to prolong dominant party regimes. However, under certain conditions, the elite-level constraints restrict autocratic leaders' ability to engage in patronage distribution. We focus on monetary institutions, arguing that when central bank independence overlaps with the collective decision-making in dominant party regimes, dictators have diminished control over the central bank. Thus the central bank is effective enough to restrict expansionary fiscal policy, reducing the mobilization of supporters through patronage and increasing authoritarian breakdown risk. Analyses on data from 1970 to 2012 in 94 autocracies find that high central bank independence in dominant party regimes increases the likelihood of breakdown. Moreover, independent central banks in partybased autocracies contribute to lower fiscal expenditures.
Does development aid attract FDI in post-conflict countries? This paper contributes to the growing literature on effects of aid and on determinants of FDI by explaining how development aid in lowinformation environments is a signal that can attract investment. Before investing abroad, firms seek data on potential host countries. In post-conflict countries, reliable information is poor, in part because governments face unusual incentives to misrepresent information. In these conditions, firms look to signals. One is development aid, because donors tend to give more to countries they trust to properly handle the funds. Our results show that aid seems to draw FDI-however, this is conditional on whether the aid can be considered geostrategically motivated. We also show that this effect decreases as time elapses after the conflict. This suggests that aid's signaling effect is specific to low-information environments, and helps rule out alternative causal mechanisms linking aid and FDI. Literature review Determinants of FDI Much of the research on the determinants of FDI has explored either economic or political factors. Regarding economic factors, there is some consensus regarding host country's characteristics that affect the profitability of investment and, therefore, encourage FDI in a given country. Market size, development, economic growth, and trade openness are among the most important economic determinants of FDI (Büthe and Milner 2008; Jensen 2006). Regarding political factors, scholars have explored the effects of political regime, institutions, veto players, and international commitments on the decision to invest in a country. For example, FDI is associated with
What are the effects of international human rights regimes on foreign direct investment (FDI)? The literature generally shows a negative relationship between human rights violations and FDI, and that international regimes can have effects beyond the parties in the agreement. However, it is not clear how a country's participation in human rights regimes affects investors' decisions. This paper analyzes the effect of participation in international human rights regimes on FDI inflows. I argue that the host country's participation in human rights regimes provides a "reputational umbrella" for investors, and has a positive effect on FDI. This effect is stronger in countries with poorer human rights records. Furthermore, human rights violations do not appear to be punished by investors if the state is a party to many human rights regimes. Empirical analyses on a sample of 135 developing countries, from 1982 to 2011, provide support for the existence of these direct and indirect effects of participation in human rights regimes on FDI. The findings help to disentangle the reputational mechanism from other possible causal mechanisms. Results are robust to various model specifications, including tests for endogeneity and reverse causality. What are the effects of international human rights regimes 1 on foreign direct investment (FDI)? Although a broad literature examines why countries commit to human rights regimes
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