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Boon or Burden? The Effect of Private Sector Debt on the Risk of Sovereign Default in Developing Countries

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  • Celasun, Oya
  • Harms, Philipp

Abstract

We explore how the share of the private sector in total external debt affects perceived creditworthiness and the likelihood of sovereign default in developing countries. While there are theoretical arguments both in favor and against a stabilizing role of private-sector borrowing, the evidence clearly supports the notion that a greater share of the private sector in total external debt is associated with a reduced likelihood of sovereign default. --

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Bibliographic Info

Paper provided by Verein für Socialpolitik, Research Committee Development Economics in its series Proceedings of the German Development Economics Conference, Zurich 2008 with number 16.

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Date of creation: 2008
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Handle: RePEc:zbw:gdec08:16

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Keywords: International Investment; Sovereign Risk;

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References

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  1. António Afonso & Pedro Gomes & Philipp Rother, 2006. "What “Hides” Behind Sovereign Debt Ratings?," Working Papers Department of Economics 2006/35, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  2. Carmen M. Reinhart, 2002. "Default, Currency Crises and Sovereign Credit Ratings," NBER Working Papers 8738, National Bureau of Economic Research, Inc.
  3. Reinhart, Carmen & Rogoff, Kenneth & Savastano, Miguel, 2003. "Debt intolerance," MPRA Paper 13932, University Library of Munich, Germany.
  4. Van Rijckeghem, Caroline & Weder di Mauro, Beatrice, 2004. "The Politics Of Debt Crises," CEPR Discussion Papers 4683, C.E.P.R. Discussion Papers.
  5. Enrica Detragiache & Antonio Spilimbergo, 2001. "Crises and Liquidity," IMF Working Papers 01/2, International Monetary Fund.
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Cited by:
  1. Markus Jorra, 2010. "The Effect of IMF Lending on the Probability of Sovereign Debt Crises," MAGKS Papers on Economics 201026, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  2. Philipp Harms & Mathias Hoffmann, 2011. "Deciding to Peg the Exchange Rate in Developing Countries: The Role of Private-Sector Debt," Open Economies Review, Springer, vol. 22(5), pages 825-846, November.
  3. Hallak, Issam, 2013. "Private sector share of external debt and financial stability: Evidence from bank loans," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 17-41.
  4. Christoph Trebesch & Michael G Papaioannou & Udaibir S. Das, 2012. "Sovereign Debt Restructurings 1950-2010," IMF Working Papers 12/203, International Monetary Fund.
  5. Christoph Trebesch, 2009. "The Cost of Aggressive Sovereign Debt Policies," IMF Working Papers 09/29, International Monetary Fund.
  6. 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).
  7. Zeaiter, Hussein Zeaiter, 2013. "Sovereign Debt Defaults: Evidence using Extreme bounds Analysis," Working Papers 32/2013, Universidade Portucalense, Centro de Investigação em Gestão e Economia (CIGE).

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