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We study the political economy of international reserve holdings in the developing world. We argue that political institutions channel two types of domestic pressures for reserve accumulation—precautionary and mercantilist—but in distinctly different ways. Democratic institutions heighten the impact of mercantilist pressures, while authoritarian institutions heighten the impact of precautionary pressures. We provide evidence consistent with these hypotheses using data from eighty‐two developing countries. Confronting the view that China's reserve holdings are "excessive" or "worrisome," we also show that given its political institutions and economic policies, China's reserve holdings are not aberrant when compared to other developing countries. ..PAT.-Unpublished Manuscript [ABSTRACT FROM AUTHOR]

While debates continue over the causes of the Asian crisis, several propositions have developed considerable currency. Two of these are that pegged exchange rates and the liberalization of capital controls played major roles in generating the crisis and its spread. A related argument frequently made is that the maintenance of highly restrictive controls helped countries such as China and India weather the storm. While rather widely held, these propositions have been subjected to relatively little systematic empirical analysis. The major purpose of this paper is to help fill this void. Our results offer several challenges to conventional wisdom. While it is undoubtedly true that China and India had restrictive controls and that they were not hit hard by the crisis, there could well be other causes for their insulation. For example, China had very high reserves and prior to the crisis, India had substantially increased the flexibility of its exchange rate regime. These issues need to be investigated within the framework of multi-variate analysis so that a number of possible influences can be taken into account. In this paper we draw upon a fundamentals based crisis model of the Asian and Mexican crises to examine the roles of exchange rate regimes and capital controls in the Asian crisis. We combine our formal statistical analysis with emphasis both on the conceptual foundations of the institutional measures used and on case study analysis of a number of the countries involved. Beyond the particular conclusion offered we hope that this analysis illustrates how case study and large N statistical analysis can complement each other. [ABSTRACT FROM AUTHOR]