Does compliance matter? Assessing the relationship between sovereign risk and compliance with international monetary law |
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Authors: | Stephen C Nelson |
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Institution: | (1) Department of Political Science, Northwestern University, 240 Scott Hall, 601 University Place, Evanston, IL 60208, USA |
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Abstract: | An important theory of international cooperation asserts that governments comply with international law because of the reputational
costs incurred by reneging on public agreements. Countries that sign binding international agreements in the realm of monetary
relations signal their commitment to an open economic system, which should reassure international market actors that the government
is committed to sound economic policies. If the theory is correct, we should observe evidence that noncompliance is in fact
costly. I test this argument by examining the effect of noncompliance with Article VIII of the IMF’s Articles of Agreement
on sovereign risk ratings. The results show that noncompliance with the agreement mitigates any benefits that accrue to Article
VIII signatories. The empirical evidence suggests that, in addition to improving economic and political conditions at home,
governments in the developing world would improve their access to financial markets by signing and complying with international
monetary agreements. |
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