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The Debt Crisis: Structural Explanations of Country Performance

  • Andrew Berg
  • Jeffrey Sachs

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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2607.

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Date of creation: Jun 1988
Date of revision:
Publication status: published as Journal of Development Economics 29 1988, 271-306translation in Trimestre Economica Vol. LVI, July 1989, Mexico
Handle: RePEc:nbr:nberwo:2607
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  1. Alberto Alesina & Guido Tabellini, 1988. "External Debt, Capital Flight and Political Risk," NBER Working Papers 2610, National Bureau of Economic Research, Inc.
  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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