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Financial Deregulation, Private Foreign Borrowing and the Risk of Sovereign Default: A Political-Economic Analysis

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  • Oya Celasun, Philipp Harms

    ()
    (Dresden University of Technology, Germany)

Abstract

It is often argued that financial liberalization and large external borrowing by the private sector bode ill for sovereign creditworthiness. In this paper, we highlight a channel through which financial liberalization reduces the risk that a developing country’s government defaults on its foreign debt. We present a simple model in which a deregulation-induced surge in private borrowing raises the political costs of default and reduces a government’s incentive to deny repayment

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Bibliographic Info

Article provided by SKEMA Business School in its journal Frontiers in Finance and Economics.

Volume (Year): 7 (2010)
Issue (Month): 1 (April)
Pages: 82-100

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Handle: RePEc:ffe:journl:v:7:y:2010:i:1:p:82-100

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Web page: http://www.ffe.esc-lille.com

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Keywords: International Investment; Sovereign Risk.;

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