How does private foreign borrowing affect the risk of sovereign default in developing countries?
We argue that increased foreign borrowing by the private sector reduces the risk that a developing country's government defaults on its foreign debt. We present a simple model in which private foreign borrowing reflects a surge of private entrepreneurship. A larger "entrepreneurial class" raises the political costs of default and reduces the government's incentive to deny repayment. The results of our empirical analysis support the model's key hypothesis.
|Date of creation:||Apr 2007|
|Date of revision:|
|Contact details of provider:|| Postal: Studienzentrum Gerzensee, Postfach 21, 3115 Gerzensee|
Phone: ++41 (0)31 780 31 31
Fax: ++41 (0)31 780 31 00
Web page: http://www.szgerzensee.ch/
|Order Information:|| Postal: Studienzentrum Gerzensee, Postfach 21, 3115 Gerzensee|
When requesting a correction, please mention this item's handle: RePEc:szg:worpap:0704. 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: (library)
If references are entirely missing, you can add them using this form.