Democracy and Breach of Contract Risk: An Assessment of How Different Dimensions of Democracy Weigh on Postcolonial States

Abstract

ABSTRACT This article compares different measures of democracy to determine how they impact breach of contract risk, especially in postcolonial states that are more likely to suffer from neopatrimonialism with their imported state apparatus. By demonstrating how the normative measure of democracy, which emphasises respect for civil liberties, is more impactful in reducing breach of contract risk than the procedural measure that emphasises institutions, this article highlights the nonoptimal consequences of institutionalised democratisation without the normative dimension. The main findings are that while there is significant variation between the normative and procedural measures of democracy, it is increases in the normative measure of democracy that better promote accountability and the rule of law, thereby more effectively reducing breach of contract risk. We conclude that democratic norms must parallel progress in democratic form so to enable better (lower) breach of contract risk.