New data reveals how democratic institutions shape sovereign borrowing costs. Domestic factors create smoother debt issuance processes by constraining leaders and ensuring policy transparency. However, this political advantage depends heavily on global capital conditions—a finding with profound implications for financial systems theory.

Global Financial Liquidity: Investor behavior shifts dramatically based on worldwide market health. When liquidity is low (e.g., 2008 crisis period), economic risk overshadows politics; when markets are flush, investors overlook democratic governance.

Data & Methods:

• Bond issue records covering 1990-2016 for 131 sovereign governments

• Analysis of over 245,000 primary market transactions across multiple currencies and regions

• Quantitative assessment integrating institutional political economy with macrofinancial factors

Key Findings:

✓ Democratic systems offer borrowing advantages under favorable global conditions

✓ This benefit evaporates during periods of constrained international capital flows

✓ Political risk sensitivity correlates strongly with systemic financial liquidity

Implications:

The study demonstrates how national institutions interact dynamically with global finance. By quantifying this connection, it offers fresh insights for policymakers and scholars into debt markets' vulnerabilities—especially when democratic accountability collides with financialized imperatives.