The Department of Government
The Department of Government

International Relations Workshop- Jonas Bunte (UT Dallas)

"The Politics of Government-to-Government Loans: Interests, Information, and Network Effects”

Wed, February 6, 2019 | BAT 5.108

12:30 PM - 2:00 PM

Abstract: Government-to-government loans are a ubiquitous tool of diplomacy. We argue that loans are closely tied to strategic interests. Creditors use loans to exercise political influence, while debtors use loans to ensure domestic political stability. These lending and borrowing decisions are deeply interdependent. Creditors compete with one another for influence over strategically valuable debtors, while debtors compete for reliable, trustworthy creditors. However, a potential partner's strategic value, reliability, and trustworthiness are difficult to ascertain. Governments thus gather information by observing, and responding to, the lending activities of others. For example, a potential debtor's ability to attract loans from others attests to that government's strategic value. Similarly, a potential creditor's existing portfolio offers insight into that government's reliability as a lender. New loans endogenously reflect existing loans. We theorize and model this interdependence in terms of networks. The efforts of governments to maximize the benefits from lending and borrowing yield empirically observable network effects. We use inferential network models to specify the precise forms that these network effects take, which in turn dramatically improves our ability to predict when and with whom governments create new loans. The analysis shows that interdependence is not merely a statistical nuisance that must be controlled but is instead a driving force behind governments' efforts to exercise political and financial influence.

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