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We analyze the influence of IMF and World Bank programs on political regime transitions. We develop an extended version of Acemoglu and Robinson's [American Economic Review 91, 2001] model of political transitions to show how the anticipation of new loans from international financial institutions can trigger political transitions which would not otherwise have taken place. We test this unexplored implication of the theory empirically. We find that the anticipation of receiving new loan programs immediately after a political regime transition increases the probability of a transition from autocracy to democracy and reduces the probability of democratic survival.

Prime Minister Koizumi Junichiro stepped down in September 2006 after a five-year term in which he reshaped Japanese politics by undermining his own party's political machine, stretched the constraints on Japan's military role, and promoted a program of "structural" economic reform. In his final year in office, he confronted a backlash against his economic reform program and presided over a chill in relations with China and South Korea. Abe Shinzo replaced Koizumi, pledging to repair relations with Japan's neighbors and to promote a pro-growth economic strategy.