Structural power and the political sources of central bank policy in developing countries

There is a wide variation in central bank policy stances across developing countries: Some central banks emphasise stability, in both prices and the financial system; some emphasise financial deepening; and some place equal emphasis on both goals. This thesis explores the argument that those who control the sources of finance on which countries rely for investment shape central bank policy stances. The argument has its roots in the theory of the structural power of capital; a theory which has remained under-explored for developing countries. This thesis seeks to contribute to the literature on structural power by further developing and probing the structuralist theory in the context of developing countries, notably those dependent on aid and natural resource rents. Combining insights from the literature on structural power and on the economic and political correlates of aid and natural resource dependence, I explore whether and how those who control the sources of finance on which countries rely for investment shape central bank policy stances. To explore these questions the thesis employs a combination of qualitative and quantitative methods. First, I use case studies from Kenya, Nigeria and Uganda to shed light on the mechanisms through which variations in a country’s major sources of investible funds induce changes in the stance of central bank policy. Second, I explore the relationship between dependence on aid and on natural resources and the stance of central bank policy econometrically, using crossnational statistical analysis. The statistical analysis contributes to theory-building by developing quantitative measures of key theoretical concepts and probes structuralist theory by examining the generalisability of the findings of the case studies. Collectively, the evidence presented in this thesis suggests that power rooted in the control of capital helps to account for central bank policy stances. The results of my research contribute to extending the theory of the structural power of capital to finance in developing countries and to the debate about the costs and benefits of different economic development strategies.