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Sovereing Defaulters: Do International Capital Markets Punish Them?

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  • Miguel Fuentes
  • Diego Saravia

Abstract

We study empirically if countries that default on their debt experience a reduction in their> capital inflows as suggested by the literature. Our data contains information on (i) the defaulter countries and their creditors and (ii) bilateral foreign direct investment (FDI) flows. With this we can study how FDI flows are affected by sovereign default distinguishing among those coming from defaulters' creditor countries and others. According to our estimations, this distinction is crucial since the decline of FDI inflows 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

Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 515.

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Date of creation: Apr 2009
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Handle: RePEc:chb:bcchwp:515

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Citations

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Cited by:
  1. Guido Sandleris, 2012. "The Costs of Sovereign Defaults:Theory and Empirical Evidence," Business School Working Papers 2012-02, Universidad Torcuato Di Tella.
  2. 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).
  3. Michael Tomz & Mark L. J. Wright, 2013. "Empirical Research on Sovereign Debt and Default," NBER Working Papers 18855, National Bureau of Economic Research, Inc.
  4. Mark Aguiar & Manuel Amador, 2013. "Sovereign Debt: A Review," NBER Working Papers 19388, National Bureau of Economic Research, Inc.
  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. Alessandro Dovis, 2013. "Efficient Sovereign Default," 2013 Meeting Papers 293, Society for Economic Dynamics.
  7. Christoph Trebesch, 2009. "The Cost of Aggressive Sovereign Debt Policies: How Much is thePrivate Sector Affected?," IMF Working Papers 09/29, International Monetary Fund.
  8. Kim Oosterlinck, 2013. "Sovereign debt defaults: insights from history," Oxford Review of Economic Policy, Oxford University Press, vol. 29(4), pages 697-714, WINTER.
  9. 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.
  10. Gonçalves, Carlos Eduardo & Guimarães, Bernardo, 2012. "Sovereign default risk and commitment for fiscal adjustment," CEPR Discussion Papers 9163, C.E.P.R. Discussion Papers.
  11. Guimaraes, Bernardo & Iazdi, Oz, 2013. "IMF conditionalities, liquidity provision, and incentives for fiscal adjustment," MPRA Paper 48896, University Library of Munich, Germany.
  12. 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.
  13. 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).
  14. Juan J. Cruces & Christoph Trebesch, 2013. "Sovereign Defaults: The Price of Haircuts," American Economic Journal: Macroeconomics, American Economic Association, vol. 5(3), pages 85-117, July.
  15. 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).
  16. 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.
  17. 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.
  18. 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.

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