Democratic Development and Credit: “Democracy Doesn&Apos;T Come Cheap” But at Least Credit to its Corporations Will Be

84 Pages Posted: 12 Oct 2018 Last revised: 18 Nov 2021

See all articles by Manthos D. Delis

Manthos D. Delis

Audencia Business School

Iftekhar Hasan

Fordham University ; Bank of Finland; University of Sydney

Steven Ongena

University of Zurich

Date Written: October 11, 2018

Abstract

Does democratization reduce the cost of credit? Using global syndicated loan data from 1984 to 2014, we find that democratization has a sizeable negative effect on loan spreads: a one-point increase in the zero-to-ten Polity IV index of democracy shaves at least 19 basis points off spreads, but likely more. Reversals to autocracy hike spreads more strongly. Our findings are robust to the comprehensive inclusion of relevant controls, to the instrumentation with regional waves of democratization, and to a battery of other sensitivity tests. We thus highlight the lower cost of loans as one relevant mechanism through which democratization can affect economic development.

JEL Classification: G21, G30, P16, P26, P27, P47

Suggested Citation

Delis, Manthos D. and Hasan, Iftekhar and Ongena, Steven, Democratic Development and Credit: “Democracy Doesn&Apos;T Come Cheap” But at Least Credit to its Corporations Will Be (October 11, 2018). Bank of Finland Research Discussion Paper No. 18/2018, Available at SSRN: https://ssrn.com/abstract=3265080 or http://dx.doi.org/10.2139/ssrn.3265080

Manthos D. Delis (Contact Author)

Audencia Business School ( email )

8 Road Joneliere
BP 31222
Nantes Cedex 3, 44312
France

Iftekhar Hasan

Fordham University ( email )

45 COLUMBUS AVENUE
GBA-5TH FLOOR
NEW YORK, NY 10023
United States

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

University of Sydney ( email )

P.O. Box H58
Sydney, NSW 2006
Australia

Steven Ongena

University of Zurich

Rämistrasse 71
Zürich, CH-8006
Switzerland

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