Democracy and Financial Crisis 1880-1913

• In Event: Flows of Aid, Trade, and Finance

Abstract

Democratic governments have factors ingrained in their institutions that leave them exposed to financial crisis. The political coalition between state’s government and bank system have been shown to be a significant determinant to the stability of a country’s financial system. These political coalitions have been divided into a taxonomy containing two elements, Populist and Liberal. Democracies with a coalition that creates a limited role for banks or unstable access to credit have been labeled as Populist. Where democracies with competitive banking systems with taxation have been categorized as Liberal. This paper expands this growing literature by quantitatively measuring the impact of these taxonomies on a state’s financial system. Populist democracies are seen to have a higher likelihood of financial crisis than Liberal democracies. This conclusion was supported by logit fixed effects methodology and illustrative case studies that include multiple countries from the time period of 1880 to 1913.

Author

• Ryan Kearns, Brookdale Community College