Aid Withdrawal as Punishment for Defaulting Sovereigns? An Empirical Analysis
This paper empirically investigates whether donor countries punish sovereign defaults by reducing foreign aid ows. Our ndings reject the hypothesis formulated in the theoretical literature that a default leads to a loss of foreign aid for the defaulting country. Creditor countries directly a ected by the default do not reduce their aid disbursements. Hence, foreign aid is not used as a punishment instrument. Neither can it therefore serve as an enforcement mechanism for international debt contracts. Furthermore, other donors even raise the amount of development assistance allocated to the delinquent country by about 15% on average. Overall the amount of foreign aid given to the defaulting country increases by 6.4%.
|Date of creation:||2012|
|Date of revision:|
|Publication status:||Forthcoming in|
|Contact details of provider:|| Postal: |
Web page: http://www.uni-marburg.de/fb02/
More information through EDIRC
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.:
- Simeon Djankov & José Garcia Montalvo & Marta Reynal-Querol, 2005.
"The curse of aid,"
Economics Working Papers
870, Department of Economics and Business, Universitat Pompeu Fabra.
- Alberto Alesina & David Dollar, 1998.
"Who Gives Foreign Aid to Whom and Why?,"
NBER Working Papers
6612, National Bureau of Economic Research, Inc.
- 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).
- Eduardo Borensztein & Ugo Panizza, 2009.
"The Costs of Sovereign Default,"
IMF Staff Papers,
Palgrave Macmillan, vol. 56(4), pages 683-741, November.
- Cole, Harold L & Kehoe, Patrick J, 1998. "Models of Sovereign Debt: Partial versus General Reputations," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(1), pages 55-70, February.
- Chong, Alberto & Gradstein, Mark, 2008. "What determines foreign aid? The donors' perspective," Journal of Development Economics, Elsevier, vol. 87(1), pages 1-13, August.
- Eaton, Jonathan & Gersovitz, Mark, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," Review of Economic Studies, Wiley Blackwell, vol. 48(2), pages 289-309, April.
- Arellano, Manuel, 1993. "On the testing of correlated effects with panel data," Journal of Econometrics, Elsevier, vol. 59(1-2), pages 87-97, September.
- Dollar, David & Levin, Victoria, 2006. "The Increasing Selectivity of Foreign Aid, 1984-2003," World Development, Elsevier, vol. 34(12), pages 2034-2046, December.
- Kletzer, Kenneth M, 1984. "Asymmetries of Information and LDC Borrowing with Sovereign Risk," Economic Journal, Royal Economic Society, vol. 94(374), pages 287-307, June.
- Kleibergen, Frank & Paap, Richard, 2006.
"Generalized reduced rank tests using the singular value decomposition,"
Journal of Econometrics,
Elsevier, vol. 133(1), pages 97-126, July.
- Kleibergen, F.R. & Paap, R., 2003. "Generalized Reduced Rank Tests using the Singular Value Decomposition," Econometric Institute Research Papers EI 2003-01, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
- Richard Paap & Frank Kleibergen, 2004. "Generalized Reduced Rank Tests using the Singular Value Decomposition," Econometric Society 2004 Australasian Meetings 195, Econometric Society.
- Frank Kleibergen & Richard Paap, 2003. "Generalized Reduced Rank Tests using the Singular Value Decomposition," Tinbergen Institute Discussion Papers 03-003/4, Tinbergen Institute.
- Juan J. Cruces & Christoph Trebesch, 2013.
"Sovereign Defaults: The Price of Haircuts,"
American Economic Journal: Macroeconomics,
American Economic Association, vol. 5(3), pages 85-117, July.
- Juan J. Cruces & Christoph Trebesch, 2011. "Sovereign Defaults: The Price of Haircuts," CESifo Working Paper Series 3604, CESifo Group Munich.
- Cruces, Juan J. & Trebesch, Christoph, 2013. "Sovereign defaults: The price of haircuts," Munich Reprints in Economics 20036, University of Munich, Department of Economics.
- Mark McGillivray & Simon Feeny & Niels Hermes & Robert Lensink, 2006. "Controversies over the impact of development aid: it works; it doesn't; it can, but that depends …," Journal of International Development, John Wiley & Sons, Ltd., vol. 18(7), pages 1031-1050.
- Grossman, Herschel I & Van Huyck, John B, 1988.
"Sovereign Debt as a Contingent Claim: Excusable Default, Repudiation, and Reputation,"
American Economic Review,
American Economic Association, vol. 78(5), pages 1088-97, December.
- Herschel I. Grossman & John B. Van Huyck, 1985. "Sovereign Debt as a Contingent Claim: Excusable Default, Repudiation, and Reputation," NBER Working Papers 1673, National Bureau of Economic Research, Inc.
- Asiedu, Elizabeth & Jin, Yi & Nandwa, Boaz, 2009.
"Does foreign aid mitigate the adverse effect of expropriation risk on foreign direct investment?,"
Journal of International Economics,
Elsevier, vol. 78(2), pages 268-275, July.
- Elizabeth Asiedu & Yi Jin & Boaz Nandwa, 2009. "Does Foreign Aid Mitigate the Adverse Effect of Expropriation Risk on Foreign Direct Investment?," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 200905, University of Kansas, Department of Economics.
- 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.
- Rose, Andrew K, 2002. "One Reason Countries Pay Their Debts: Renegotiation and International Trade," CEPR Discussion Papers 3157, C.E.P.R. Discussion Papers.
- Andrew K. Rose, 2001. "One reason countries pay their debts: renegotiation and international trade," Staff Reports 142, Federal Reserve Bank of New York.
- Andrew K. Rose, 2002. "One Reason Countries Pay their Debts: Renegotiation and International Trade," NBER Working Papers 8853, National Bureau of Economic Research, Inc.
- Andrew K. Rose, 2002. "One Reason Countries Pay their Debts: Renegotiation and International Trade," EUI-RSCAS Working Papers 18, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).
- Andrew K. Rose, 2002. "One Reason Countries Pay Their Debts: Renegotiation and International Trade," Working Papers 042002, Hong Kong Institute for Monetary Research.
- Jeremy I. Bulow & Kenneth Rogoff, 1986.
"A Constant Recontracting Model of Sovereign Debt,"
NBER Working Papers
2088, National Bureau of Economic Research, Inc.
- Jeremy A.Rogoff Bulow & Kenneth, 1986. "A Constant Recontracting Model of Sovereign Debt," University of Chicago - George G. Stigler Center for Study of Economy and State 43, Chicago - Center for Study of Economy and State.
- Bulow, Jeremy & Rogoff, Kenneth S., 1989. "A Constant Recontracting Model of Sovereign Debt," Scholarly Articles 12491028, Harvard University Department of Economics.
- James H. Stock & Motohiro Yogo, 2002. "Testing for Weak Instruments in Linear IV Regression," NBER Technical Working Papers 0284, National Bureau of Economic Research, Inc.
- Wooldridge, Jeffrey M., 1995. "Selection corrections for panel data models under conditional mean independence assumptions," Journal of Econometrics, Elsevier, vol. 68(1), pages 115-132, July.
- 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..
- Berthelemy, Jean-Claude & Tichit, Ariane, 2002.
"Bilateral Donors' Aid Allocation Decisions: A Three-dimensional Panel Analysis,"
Working Paper Series
UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
- Berthelemy, Jean-Claude & Tichit, Ariane, 2004. "Bilateral donors' aid allocation decisions--a three-dimensional panel analysis," International Review of Economics & Finance, Elsevier, vol. 13(3), pages 253-274.
- Jose Vicente Martinez and Guido Sandleris, 2008.
"Is it Punishment? Sovereign Defaults and the Decline in Trade,"
Business School Working Papers
2008-01, Universidad Torcuato Di Tella.
- Martinez, Jose Vicente & Sandleris, Guido, 2011. "Is it punishment? Sovereign defaults and the decline in trade," Journal of International Money and Finance, Elsevier, vol. 30(6), pages 909-930, October.
- Asiedu, Elizabeth & Villamil, Anne P., 2002. "Imperfect Enforcement, Foreign Investment, And Foreign Aid," Macroeconomic Dynamics, Cambridge University Press, vol. 6(04), pages 476-495, September.
- Stijn Claessens & Danny Cassimon & Bjorn Van Campenhout, 2009. "Evidence on Changes in Aid Allocation Criteria," World Bank Economic Review, World Bank Group, vol. 23(2), pages 185-208, June.
- Axel Dreher & Jan-Egbert Sturm, 2012. "Do the IMF and the World Bank influence voting in the UN General Assembly?," Public Choice, Springer, vol. 151(1), pages 363-397, April.
When requesting a correction, please mention this item's handle: RePEc:mar:magkse:201220. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Bernd Hayo)
If references are entirely missing, you can add them using this form.