Sovereign Default, International Lending, and Trade
AbstractThis paper sheds new light on the “trade costs” of sovereign default. It argues that the decline in trade in the wake of sovereign debt crises documented in earlier studies is the result of a reduction in exporters’ access to foreign credit. Using an annual panel of 28 industries in 100 countries between 1980 and 2007, it shows that default leads to a stronger contraction in the exports of sectors which are more dependent on external financing, consistent with this hypothesis. This finding is robust across different econometric specifications, and of economically significant magnitude. It suggests that any impact of sovereign default on trade, rather than a cost of default in its own right, may be a symptom of reduced access to international capital markets.
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Bibliographic InfoArticle provided by Palgrave Macmillan in its journal IMF Economic Review.
Volume (Year): 60 (2012)
Issue (Month): 3 (September)
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Web page: http://www.palgrave-journals.com/
Postal: Palgrave Macmillan Journals, Subscription Department, Houndmills, Basingstoke, Hampshire RG21 6XS, UK
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- 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.
- Filippo Brutti & Philip Ulrich Sauré, 2014. "Repatriation of Debt in the Euro Crisis: Evidence for the Secondary Market Theory," Working Papers 2014-03, Swiss National Bank.
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