Authors' note: Earlier versions of this article were presented on panels at the 2001 meetings of the American Political Science Association and the International Studies Association, and at research seminars at the University of Colorado, New York University, the University of North Texas, and Yale University. We thank participants on these panels and in these seminars for comments and criticisms. We especially appreciate the input of William Bernhard, David Leblang, and Tom Willet. For the data used in gauging the impact of extragovernmental political behavior on financial markets we thank Doug and Joe Bond.
Exchange Rate Volatility and Democratization in Emerging Market Countries
Version of Record online: 2 JUN 2003
International Studies Quarterly
Volume 47, Issue 2, pages 203–228, June 2003
How to Cite
Hays, J. C., Freeman, J. R. and Nesseth, H. (2003), Exchange Rate Volatility and Democratization in Emerging Market Countries. International Studies Quarterly, 47: 203–228. doi: 10.1111/1468-2478.4702003
- Issue online: 2 JUN 2003
- Version of Record online: 2 JUN 2003
We examine some of the consequences of financial globalization for democratization in emerging market economies by focusing on the currency markets of four Asian countries at different stages of democratic development. Using political data of various kinds—including a new events data series—and the Markov regime switching model from empirical macroeconomics, we show that in young and incipient democracies politics continuously causes changes in the probability of experiencing two different currency market equilibria: a high volatility “contagion” regime and a low volatility “fundamentals” regime. The kind of political events that affect currency market equilibration varies cross-nationally depending on the degree to which the polity of a country is democratic and its policymaking transparent. The results help us better gauge how and the extent to which democratization is compatible with financial globalization.