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Like Father like Sons? The Cost of Sovereign Defaults In Reduced Credit to the Private Sector

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Listed author(s):
  • Esteves, Rui
  • Jalles, João Tovar

Abstract

This paper investigates the impact of sovereign defaults on the ability of the corporate sector in emerging nations to finance itself abroad. The hypothesis here is that defaults have a negative spillover effect on the private sector through credit rationing. We explore a novel dataset covering the vast majority of corporates and municipals in emerging nations that received foreign capital between 1880 and 1913. The detailed nature of the data allows us to explore variation between countries and economic sectors. The results confirm that rationing existed, was very large, and persisted long beyond the solution of the original default problem. Therefore, the private sector in emerging countries paid a severe reputational cost for the debt intolerance of their governments, with possible implications for the growth prospects of these nations.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 9303.

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Date of creation: Jan 2013
Handle: RePEc:cpr:ceprdp:9303
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Keywords: Credit Rationing; Foreign Investment; Pre-1914; Sovereign Default;

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Find related papers by JEL classification:
  • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
  • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
  • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
  • N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative
  • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative

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Cited by:

  1. Vincent Bignon & Rui Esteves & Alfonso Herranz-Loncán, 2015. "Big push or big grab? Railways, government activism, and export growth in Latin America, 1865–1913," Economic History Review, Economic History Society, vol. 68(4), pages 1277-1305, November.

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