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How Do Commercial Banks Sustain Autocratic Regimes?
Scholars have long argued that financial liberalization triggers the collapse of autocratic regimes. This is based on the premise that open financial markets make assets more mobile and the cost of democratization lower. However, many financially open autocracies have survived the global push for financial liberalization. How, then, do autocratic regimes survive the pressures of financial openness to liberalize their countries? In this paper, I address this question by focusing on the neglected aspect of financial liberalization: the deregulation of the banking system. I argue that eliminating restrictions on the banking sector leads to the proliferation of commercial banks that allocate credit to economic elites who intend to invest in the real sector. This increased access to capital makes these elites more likely to support the autocratic regime initiating these reforms, prolonging its tenure. Additionally, commercial banks increase the disposable income of lower- and middle-income groups through financial instruments such as consumer credits and mortgage plans, which diminishes their demand for redistribution and democratization. To test these arguments, I use a mixed-method approach, illustrating the mechanisms through a case study on Turkey and testing the implications of the theoretical arguments in a broader sample of autocratic regimes through cross-national statistical analysis.
Political Science
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