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The Debt Crisis: Structural Explanations of Country Performance

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  • Andrew Berg
  • Jeffrey Sachs

Abstract

This paper develops a cross-country statistical model of debt rescheduling, and the secondary market valuation of LDC debt, which links these variables to key structural characteristics of developing countries, such as the trade regime, the degree of income inequality, and the share of agriculture in GNP Our most striking finding is that higher income inequality is a significant predictor of a-higher probability of debt rescheduling in a cross-section of middle-income countries. We attribute this correlation to various difficulties of political management in economies with extreme inequality. We also find that outward-orientation of the trade regime is a significant predictor of a reduced probability of debt rescheduling.

Suggested Citation

  • Andrew Berg & Jeffrey Sachs, 1988. "The Debt Crisis: Structural Explanations of Country Performance," NBER Working Papers 2607, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:2607
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    1. Alesina, Alberto & Tabellini, Guido, 1989. "External debt, capital flight and political risk," Journal of International Economics, Elsevier, vol. 27(3-4), pages 199-220, November.
    2. Adelman, Irma & Robinson, Sherman, 1989. "Income distribution and development," Handbook of Development Economics,in: Hollis Chenery & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 2, chapter 19, pages 949-1003 Elsevier.
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