Shifting political influence? UN General Assembly behavior during debt crisis

This paper looks at the political influence that China and Western official creditors exert on how debtor countries vote at the United Nations General Assembly. The theoretical framework emphasizes the common agency problem that both China and the West face. Starting from the premise that countries that owe more debt to China than the West are more aligned with Chinese positions at the UNGA, we argue that debt crisis changes voting behavior to be more in line with the West. Empirically, we construct a dataset of debt exposure and UNGA voting behavior covering 1990 to 2020 and perform panel analysis with two-way fixed effects. Identification is addressed by a) arguing that omitted variable bias resulting from political proximity to China likely has a conservative direction, b) a formal sensitivity analysis, and c) an additional instrumental variables regression that leverages exchange rate shocks driven by US domestic policies as excludable instrument. We find that countries with a high debt exposure to China move away from China’s UNGA policy positions when they default on their sovereign debt obligations, indicating lowered political Chinese influence.