Optimal Debt? On the Insurance Value of International Debt Flows to Developing Countries
AbstractAccording to reputation models of sovereign debt, the incentives to repay are proportional to the income insurance benefits provided by access to international markets. This paper, however, documents that private net lending to developing countries exhibits a procyclical or acyclical pattern, contradicting this premise. By contrast, official debt net flows exhibit a countercyclical patter. In addition, the paper shows that (both current and past) defaults are associated with lower net debt flows. The findings, which are robust to various additional controls, cast doubt on the reputation view of sovereign debt markets. At the same time, they suggest that reputation may account for the success of the (implicit) preferred creditor status enjoyed by multilateral lenders.
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Bibliographic InfoArticle provided by Springer in its journal Open Economies Review.
Volume (Year): 20 (2009)
Issue (Month): 4 (September)
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Web page: http://www.springerlink.com/link.asp?id=100323
Sovereign debt; Capital flows; Debt default; E6; F3; F4; G1;
Other versions of this item:
- Eduardo Levy Yeyati, 2006. "Optimal Debt? On the Insurance Value of International Debt Flows to Developing Countries," Business School Working Papers 2006-12, Universidad Torcuato Di Tella.
- E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
- F3 - International Economics - - International Finance
- F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
- G1 - Financial Economics - - General Financial Markets
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