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Sovereign Default, International Lending, and Trade

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  • Robert Zymek

Abstract

This 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.

Suggested Citation

  • Robert Zymek, 2012. "Sovereign Default, International Lending, and Trade," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 60(3), pages 365-394, September.
    • Handle: RePEc:pal:imfecr:v:60:y:2012:i:3:p:365-394
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    Citations

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    Cited by:

    1. Elard, Ilaf, 2020. "Three-player sovereign debt negotiations," International Economics, Elsevier, vol. 164(C), pages 217-240.
    2. Bédhat Jean-Marc Atsebi & Jean-Louis Combes & Alexandru Minea, 2019. "The trade costs of financial crises," Working Papers halshs-01990335, HAL.
    3. Andreasen, Eugenia, 2015. "Sovereign default, enforcement and the private cost of capital," International Review of Economics & Finance, Elsevier, vol. 39(C), pages 411-427.
    4. Filippo Brutti & Philip Sauré, 2016. "Repatriation of Debt in the Euro Crisis," Journal of the European Economic Association, European Economic Association, vol. 14(1), pages 145-174.
    5. Filippo Brutti & Philip U. Sauré, 2014. "Repatriation of Debt in the Euro Crisis: Evidence for the Secondary Market Theory," Working Papers 2014-03, Swiss National Bank.
    6. Eliphas Ndou, 2022. "Exchange rate changes on export volumes in South Africa under the inflation targeting period," SN Business & Economics, Springer, vol. 2(6), pages 1-25, June.
    7. Chwieroth, Jeffrey & Simpson, Cohen & Walter, Andrew, 2014. "Networked default: public debt, trade embeddedness, and partisan survival in democracies since 1870," LSE Research Online Documents on Economics 60929, London School of Economics and Political Science, LSE Library.
    8. Kikkawa, Ayumu Ken & Sasahara, Akira, 2020. "Gains from trade and the sovereign bond market," European Economic Review, Elsevier, vol. 124(C).
    9. Sergey Pekarski & Anna Sokolova, 2021. "Default Costs and Self-fulfilling Fiscal Limits in a Small Open Economy," HSE Working papers WP BRP 243/EC/2021, National Research University Higher School of Economics.
    10. 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 and Oxford Review of Economic Policy Limited, vol. 29(4), pages 649-667, WINTER.
    11. Thakerngkiat, Narongdech & Nguyen, Hung T. & Nguyen, Nhut H. & Visaltanachoti, Nuttawat, 2023. "Does fear spur default risk?," International Review of Economics & Finance, Elsevier, vol. 83(C), pages 879-899.

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