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Have Commercial Banks Ignored History?

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  • Sule Ozler

Abstract

This paper investigates the impact of past defaults. and of recently acquired sovereignty on the terms of bank loans for developing countries in the 1970s. We control for countries' repayment indicators and for a measure of their political stability. Our findings are that: 1) The repayment difficulties of the period prior to the 1930s do not have a statistically significant impact on the credit terms. In contrast. the defaults of the 1930s and the post war defaults and repayment difficulties do have a statistically significant impact on credit terms. These findings are in contrast to those studies that focused on crises periods in these markets. Our results suggest that countries' repayment behavior influence their later market access. 2) Nations that achieved sovereignty recently were charged higher rates than nations that were sovereign before the 1940s. In fact. recently sovereign borrowers were charged as high rates as the defaulters of the former episodes. This finding suggests that markets attach risk premium for new institutions.

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  • Sule Ozler, 1992. "Have Commercial Banks Ignored History?," NBER Working Papers 3959, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:3959
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    1. Peter H. Lindert & Peter J. Morton, 1989. "How Sovereign Debt Has Worked," NBER Chapters,in: Developing Country Debt and the World Economy, pages 225-236 National Bureau of Economic Research, Inc.
      • Peter H. Lindert & Peter J. Morton, 1989. "How Sovereign Debt Has Worked," NBER Chapters,in: Developing Country Debt and Economic Performance, Volume 1: The International Financial System, pages 39-106 National Bureau of Economic Research, Inc.
    2. 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 1088-1097, December.
    3. Barry Eichengreen, 1991. "Historical Research on International Lending and Debt," Journal of Economic Perspectives, American Economic Association, vol. 5(2), pages 149-169, Spring.
    4. Eaton, Jonathan & Taylor, Lance, 1986. "Developing country finance and debt," Journal of Development Economics, Elsevier, vol. 22(1), pages 209-265, June.
    5. Jonathan Eaton & Mark Gersovitz & Joseph E. Stiglitz, 1991. "The Pure Theory of Country Risk," NBER Chapters,in: International Volatility and Economic Growth: The First Ten Years of The International Seminar on Macroeconomics, pages 391-435 National Bureau of Economic Research, Inc.
    6. Eichengreen, Barry & Portes, Richard, 1986. "Debt and default in the 1930s : Causes and consequences," European Economic Review, Elsevier, vol. 30(3), pages 599-640, June.
    7. Raquel Fernandez & Sule Ozler, 1991. "Debt Concentration and Secondary Markets Prices: A Theoretical and Empirical Analysis," NBER Working Papers 3654, National Bureau of Economic Research, Inc.
    8. Ozler, Sule, 1989. "On the Relation between Reschedulings and Bank Value," American Economic Review, American Economic Association, vol. 79(5), pages 1117-1131, December.
    9. Jonathan Eaton & Mark Gersovitz, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," Review of Economic Studies, Oxford University Press, vol. 48(2), pages 289-309.
    10. Sule Ozler & Guido Tabellini, 1991. "External Debt and Political Instability," NBER Working Papers 3772, National Bureau of Economic Research, Inc.
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