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Sovereign Defaulters: Do International Capital Markets Punish Them?

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Author Info
Miguel Fuentes () (Instituto de Economía. Pontificia Universidad Católica de Chile.)
Diego Saravia () (Instituto de Economía. Pontificia Universidad Católica de Chile.)

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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 more proximate 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 punishment suggested in the literature.

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Publisher Info
Paper provided by Instituto de Economía. Pontificia Universidad Católica de Chile. in its series Documentos de Trabajo with number 314.

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Date of creation: 2006
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Handle: RePEc:ioe:doctra:314

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Find related papers by JEL classification:
F30 - International Economics - - International Finance - - - General
F34 - International Economics - - International Finance - - - International Lending and Debt Problems

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  2. Eaton, Jonathan & Gersovitz, Mark, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," Review of Economic Studies, Blackwell Publishing, vol. 48(2), pages 289-309, April. [Downloadable!] (restricted)
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  4. David L. Carr & James R. Markusen & Keith E. Maskus, 2001. "Estimating the Knowledge-Capital Model of the Multinational Enterprise," American Economic Review, American Economic Association, vol. 91(3), pages 693-708, June. [Downloadable!] (restricted)
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  5. Carlos Arteta & Galina Hale, 2006. "Sovereign debt crises and credit to the private sector," Working Paper Series 2006-21, Federal Reserve Bank of San Francisco. [Downloadable!]
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  6. David L. Carr & James R. Markusen & Keith E. Maskus, 2003. "Estimating the Knowledge-Capital Model of the Multinational Enterprise: Reply," American Economic Review, American Economic Association, vol. 93(3), pages 995-1001, June. [Downloadable!] (restricted)
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  8. Bruce A. Blonigen, 2005. "A Review of the Empirical Literature on FDI Determinants," NBER Working Papers 11299, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Menzie D. Chinn & Hiro Ito, 2002. "Capital Account Liberalization, Institutions and Financial Development: Cross Country Evidence," NBER Working Papers 8967, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  13. repec:rus:hseeco:123922 is not listed on IDEAS
  14. Beck, Thorsten & Levine, Ross & Loayza, Norman, 1999. "Finance and the sources of growth," Policy Research Working Paper Series 2057, The World Bank. [Downloadable!]
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  15. Bruce Blonigen, 2005. "A Review of the Empirical Literature on FDI Determinants," Atlantic Economic Journal, International Atlantic Economic Society, vol. 33(4), pages 383-403, December. [Downloadable!] (restricted)
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  17. Rose, Andrew K., 2005. "One reason countries pay their debts: renegotiation and international trade," Journal of Development Economics, Elsevier, vol. 77(1), pages 189-206, June. [Downloadable!] (restricted)
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