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Sovereign defaulters: Do international capital markets punish them?

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  • Fuentes, Miguel
  • Saravia, Diego

Abstract

We empirically study whether countries that default on their debt experience a reduction in their capital inflows, as suggested by the literature. Our data contain information on (i) the defaulter countries and their creditors and (ii) bilateral foreign direct investment (FDI) flows. With these we can study how FDI flows are affected by sovereign default by distinguishing between those flows coming from defaulters' creditor countries and others. According to our estimations, this distinction is crucial since the decline of FDI in flows after default is markedly concentrated on those flows originating in defaulters' creditor countries. The decay in FDI flows is higher in the years closer to the default date and for countries that have defaulted more times. We do not find evidence that countries shut their doors to defaulters' investment abroad, which is also a cost of default suggested in the literature.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 91 (2010)
Issue (Month): 2 (March)
Pages: 336-347

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Handle: RePEc:eee:deveco:v:91:y:2010:i:2:p:336-347

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Web page: http://www.elsevier.com/locate/devec

Related research

Keywords: Sovereign default Sovereign debt Foreign direct investment Debt repayment;

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References

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Citations

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Cited by:
  1. Ugo Panizza & Federico Sturzenegger & Jeromin Zettelmeyer, 2009. "The Economics and Law of Sovereign Debt and Default," Journal of Economic Literature, American Economic Association, vol. 47(3), pages 651-98, September.
  2. Juan J. Cruces & Christoph Trebesch, 2011. "Sovereign Defaults: The Price of Haircuts," CESifo Working Paper Series 3604, CESifo Group Munich.
  3. Mark Aguiar & Manuel Amador, 2013. "Sovereign Debt: A Review," NBER Working Papers 19388, National Bureau of Economic Research, Inc.
  4. Jeromin Zettelmeyer & Marcos Chamon & Ran Bi, 2011. "The Problem that Wasn't: Coordination Failures in Sovereign Debt Restructurings," IMF Working Papers 11/265, International Monetary Fund.
  5. Jana Brandt & Markus Jorra, 2012. "Aid Withdrawal as Punishment for Defaulting Sovereigns? An Empirical Analysis," MAGKS Papers on Economics 201220, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  6. Udaibir S. Das & Michael G. Papaioannou & Christoph Trebesch, 2010. "Sovereign Default Risk and Private Sector Access to Capital in Emerging Markets," IMF Working Papers 10/10, International Monetary Fund.
  7. Carlos Eduardo Gonçalves & Bernardo Guimarães, 2012. "Sovereign default risk and commitment for fiscal adjustment," Working Papers, Department of Economics 2012_23, University of São Paulo (FEA-USP).
  8. Guimaraes, Bernardo & Iazdi, Oz, 2013. "IMF conditionalities, liquidity provision, and incentives for fiscal adjustment," MPRA Paper 48896, University Library of Munich, Germany.
  9. Rohan Pitchford & Mark L. J. Wright, 2013. "On the contribution of game theory to the study of sovereign debt and default," Oxford Review of Economic Policy, Oxford University Press, vol. 29(4), pages 649-667, WINTER.
  10. Kim Oosterlinck, 2013. "Sovereign debt defaults: insights from history," Oxford Review of Economic Policy, Oxford University Press, vol. 29(4), pages 697-714, WINTER.
  11. Boonman, Tjeerd M., 2013. "Sovereign defaults, business cycles and economic growth in Latin America, 1870-2012," Research Report 13010-EEF, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
  12. Michael Tomz & Mark L.J. Wright, 2013. "Empirical Research on Sovereign Debt and Default," Annual Review of Economics, Annual Reviews, vol. 5(1), pages 247-272, 05.
  13. Christoph Trebesch & Michael G Papaioannou & Udaibir S. Das, 2012. "Sovereign Debt Restructurings 1950 - 2010: Literature Survey, Data, and Stylized Facts," IMF Working Papers 12/203, International Monetary Fund.
  14. Alessandro Dovis, 2013. "Efficient Sovereign Default," 2013 Meeting Papers 293, Society for Economic Dynamics.
  15. Vidovics-Dancs, Ágnes, 2014. "Az államcsőd költségei régen és ma
    [Costs of sovereign defaults now and long ago]
    ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(3), pages 262-278.
  16. Carlos Eduardo Gonçalves & Bernardo Guimaraes, 2012. "Optimal fiscal adjustment and the commitment-to-forgive issue," Working Papers, Department of Economics 2012_01, University of São Paulo (FEA-USP).
  17. Guido Sandleris, 2012. "The Costs of Sovereign Defaults:Theory and Empirical Evidence," Business School Working Papers 2012-02, Universidad Torcuato Di Tella.
  18. Markus Jorra, 2011. "The Heterogeneity of Default Costs: Evidence from Recent Sovereign Debt Crises," MAGKS Papers on Economics 201151, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  19. Christoph Trebesch, 2009. "The Cost of Aggressive Sovereign Debt Policies: How Much is thePrivate Sector Affected?," IMF Working Papers 09/29, International Monetary Fund.

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