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Serial Default and Its Remedies

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  • Reinhart, Carmen
  • Rogoff, Kenneth

Abstract

The main theme of this paper is that debt cycles deeply entrenched in the process of development, and one must be careful about trusting magic elixirs that purport to finesse the problem entirely. Middle income countries nascent political and economic institutions, often simultaneously face extremely high degrees of economic uncertainty, not least stemming from the extraordinary volatility of world commodity and agricultural prices. At the same time, many of these countries have exhausted autarkic growth strategies, and find themselves desparately needing to deepen financial markets in order to efficiently allocate scarce saving and expand growth. But this process of deepening – often associated with increased international capital market integration – almost invariably exposes them to heightened risks. And, unfortunately, once a country suffers one bout of default, its institutions and markets become weaker and more vulnerable to more debt problems, a phenomenon Reinhart, Rogoff and Savastano term “Debt Intolerance.”

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 7423.

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Date of creation: 2005
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Handle: RePEc:pra:mprapa:7423

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  1. Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "Serial Default and the "Paradox" of Rich-to-Poor Capital Flows," American Economic Review, American Economic Association, vol. 94(2), pages 53-58, May.
  2. Lucas, Robert E, Jr, 1990. "Why Doesn't Capital Flow from Rich to Poor Countries?," American Economic Review, American Economic Association, vol. 80(2), pages 92-96, May.
  3. Mark Gertler & Kenneth Rogoff, 1989. "Developing Country Borrowing and Domestic Wealth," NBER Working Papers 2887, National Bureau of Economic Research, Inc.
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Cited by:
  1. Muhammad Umar Draz, 2011. "Impact Of Financial Crises On Pakistan And China: A Comparative Study Of Six Decades," Journal of Global Business and Economics, Global Research Agency, vol. 3(1), pages 174-186, July.
  2. Qian, Rong, 2012. "Why do some countries default more often than others ? the role of institutions," Policy Research Working Paper Series 5993, The World Bank.

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