Journal Articles

Political Institutions and Property Rights: Veto Players and Foreign Exchange Commitments in 127 Countries

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What political institutions improve property rights? Building on the work of North and Weingast, this article argues that institutional checks on policy-making discretion (“veto players”) improve the property rights of investors regarding the value of the domestic currency. Veto players constrain the ability of policy makers to opportunistically pursue policy that may lead to a depreciated domestic currency. The study offers some of the first large-sample evidence that check and balance institutions lower the risk of expropriation, using a direct measure of investors’ revealed preferences as the dependent variable. In particular, evidence from 127 countries over the period 1975-2004 shows that the use of foreign currency as a store of value— a common hedge against domestic currency depreciation—decreases with the number of veto players in government. The findings are robust to multiple specifications, including instrumental variable models that exploit exogenous sources of institutional variation.

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Detail Information

Series Title

Comparative Political Studies

Call Number

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Publisher

Thousand Oak : sage publisher., 2011

Collation

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Language

English

ISBN/ISSN

00104140

Classification

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Content Type

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Media Type

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Carrier Type

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Edition

Vol. 44 no. 2, February 2011.pp. 211-240

Subject(s)

Political economy
veto players
institutions
Political Institutions and Property Rights
Property rights
Financial development

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