I now turn to the question of financial market influence on government policy choices in the developing world. How does the influence of financial markets in developing nations differ from that in developed nations, and what explains the difference? In the preceding chapters, I have demonstrated that financial market influence on advanced industrial democracies is strong, but nevertheless narrow. As long as governments perform to financial market participants' satisfaction on a set of key indicators, they are relatively unconstrained in other policy areas. In general, differences in microlevel policy outputs or outcomes are not associated with the rate of interest charged on government bonds, and the implied effects of government partisanship on bond rates are small.

In Chapter 2, I hypothesized that financial market influence on developing world governments with open capital accounts would be strong and broad. Investors are uncertain regarding these governments' types, and there is a significant probability that these governments are potential defaulters. Therefore, market participants rely on a wide set of economic policy indicators and political variables when making investment decisions.