Sovereign defaults, business cycles and economic growth in Latin America, 1870-2012
AbstractSovereign debt crises have regained attention since the recent crises in several European countries. This paper focuses on a particular aspect of the debt crisis literature: the impact of sovereign default on economic growth. Previous research agrees on the negative impact, but not on size and duration. We are particularly interested in the heterogeneity of crisis impacts: Why are some crises deeper and longer than others? And what is the role of business cycles? We analyze four Latin American countries (Argentina, Brazil, Chile and Mexico) for the period 1870-2012, covering 14 sovereign debt defaults. We find that most sovereign defaults start in recessions, and in unfavorable international circumstances. Economic growth is heavily affected in the year of the default and the year after. Then economic growth picks up, but recovery is far from smooth, including periods of recurrent negative growth. We observe strong heterogeneity in the impact, which we attribute to commodity price changes, economic growth and government expenditure in the run-up to the crisis.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University of Groningen, Research Institute SOM (Systems, Organisations and Management) in its series Research Report with number 13010-EEF.
Date of creation: 2013
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-09-13 (All new papers)
- NEP-FDG-2013-09-13 (Financial Development & Growth)
- NEP-HIS-2013-09-13 (Business, Economic & Financial History)
- NEP-LAM-2013-09-13 (Central & South America)
- NEP-MAC-2013-09-13 (Macroeconomics)
- NEP-OPM-2013-09-13 (Open Economy Macroeconomic)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jeffrey A. Frankel & Carlos A. Végh & Guillermo Vuletin, 2011.
"On Graduation from Fiscal Procyclicality,"
NBER Working Papers
17619, National Bureau of Economic Research, Inc.
- Daniel Kapp & Marco Vega, 2012.
"Real Output Costs of Financial Crises: A Loss Distribution Approach,"
1201.0967, arXiv.org, revised May 2012.
- Daniel Kapp & Marco Vega, 2012. "Real Output Costs of Financial Crises: a Loss Distribution Approach," Documentos de Trabajo 2012-332, Departamento de Economía - Pontificia Universidad Católica del Perú.
- Kapp, Daniel & Vega, Marco, 2012. "Real output costs of financial crises: a loss distribution approach," MPRA Paper 35706, University Library of Munich, Germany.
- Gupta, Poonam & Mishra, Deepak & Sahay, Ratna, 2007. "Behavior of output during currency crises," Journal of International Economics, Elsevier, vol. 72(2), pages 428-450, July.
- Furceri, Davide & Zdzienicka, Aleksandra, 2012.
"How costly are debt crises?,"
Journal of International Money and Finance,
Elsevier, vol. 31(4), pages 726-742.
- Gerardo della Paolera & Alan M. Taylor, 2012.
"Sovereign Debt in Latin America, 1820–1913,"
CEU Working Papers
2012_18, Department of Economics, Central European University, revised 19 Sep 2012.
- Fuentes, Miguel & Saravia, Diego, 2010.
"Sovereign defaulters: Do international capital markets punish them?,"
Journal of Development Economics,
Elsevier, vol. 91(2), pages 336-347, March.
- Miguel Fuentes & Diego Saravia, 2009. "Sovereing Defaulters: Do International Capital Markets Punish Them?," Working Papers Central Bank of Chile 515, Central Bank of Chile.
- Miguel Fuentes & Diego Saravia, 2006. "Sovereign Defaulters: Do International Capital Markets Punish Them?," Documentos de Trabajo 314, Instituto de Economia. Pontificia Universidad Católica de Chile..
- Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "This Time Is Different: Eight Centuries of Financial Folly," Economics Books, Princeton University Press, edition 1, volume 1, number 8973.
- Carmen M. Reinhart & Kenneth S. Rogoff, 2008. "This Time is Different: A Panoramic View of Eight Centuries of Financial Crises," NBER Working Papers 13882, National Bureau of Economic Research, Inc.
- Carmen M. Reinhart & Kenneth S. Rogoff, 2010.
"From Financial Crash to Debt Crisis,"
NBER Working Papers
15795, National Bureau of Economic Research, Inc.
- Markus Bruckner & Rabah Arezki, 2010. "International Commodity Price Shocks, Democracy, and External Debt," IMF Working Papers 10/53, International Monetary Fund.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joke Bulthuis).
If references are entirely missing, you can add them using this form.