Diaspora Bonds: Explaining Their Mixed Record
43 Pages Posted: 5 Sep 2013
Date Written: 2013
Abstract
A diaspora bond is a debt instrument issued by a country — or potentially, a subsovereign entity or even a private corporation — to raise financing from its overseas diaspora (Ketkar and Ratha 2010). World Bank economists argue that they can help developing countries raise much needed capital, and that these countries may issue them successfully at a discounted “patriotic” interest rate. However, the mixed success of the countries that have issued such bonds begs the question: Why do some countries issue diaspora bonds successfully, while others fail? Using Fuzzy Set Qualitative Comparative Analysis (fs/QCA) (Ragin, 1987, 2001, 2008) we compare nine diaspora bonds issued by six countries (Nepal, Ethiopia, India, the Philippines, Ghana, and Kenya) to identify the causal configurations that are necessary and sufficient for a diaspora bond issuance to succeed. Our main finding is that, while widely accepted conditions such as interest rates, credit risk, and political regime also affect diaspora bonds, their success or failure cannot be understood without taking into account institutions and politics particular to diasporas and their unique relationship with the bond-issuing government.
Keywords: diaspora, development, international migration, sovereign bonds, networks
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