Governments’ Borrowing Decisions across the Developing World

Societal coalition shape governments’ borrowing decisions across the developing world. The analyses use a compositional data model to estimate the effect of societal coalitions on the share of loans obtained from four types of creditors. The results indicate that borrowing portfolios differ significantly across coalitions: Corporatist Coalitions rely primarily on BRIC loans, Capital Coalitions on private creditors, Consumer Coalitions on bilateral loans from Western governments. These differences remain significant after controlling for economic factors (recipient GDP, current account, existing debt levels, trade, and natural resources) and political considerations (democracies versus autocracies, type of electoral system, or government ideology). Furthermore, the results are robust to analyzing China separately from Brazil, India, and Russia, as well as when combining Western bilateral with multilateral loans. The evidence strongly supports the argument that developing countries make choices among competing loan offers.