In developing countries, the magnitude as well as the composition of foreign capital greatly influences the political fortunes of domestic actors, and thus regime trajectory. This paper demonstrates that the states of Central Asia and the Caucasus depend heavily on external capital flows for the financing of their fiscal deficits and that the bulk of the flows go directly to authoritarian governments. This situation has empowered authoritarian rulers, provided very little financial strength to local businesses, and offered half-hearted incentives for market reforms. Moreover, the small differences among these states in terms of the composition of capital flows also explain why some of these states have moved towards a milder version of authoritarian rule while others have been stuck in hard authoritarianism.

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