Financial sectors in the developing world pressure governments to open capital accounts, a policy which standard theories of open economy politics predicts would harm their interests. I explain this apparent contradiction by studying international financial intermediation, showing that lenders...

How do markets discipline governments? The most direct way is through sovereign borrowing costs. Investors charge more interest when they anticipate that the risks of default increase. Where markets get their information from and how they use this information, however, is not well documented. In...