The Politics of External Debt in Developing Countries

Abstract

We analyse the determinants of long term external debt for a large sample of developing countries. We ¯nd that, in addition to the stan- dard economic variables, institutional and socio-political variables are a key factor in explaining the level of external debt. Overall the re- sults point to an interpretation based on the presence of binding credit constraints. Such constraints are relaxed in the presence of high qual- ity of institutions and low political risk, while they are tightened when socio-political risk is higher.