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Sovereign Risk : Constitutions Rule

  • Kohlscheen, Emanuel

    (Department of Economics, University of Warwick)

This paper models the executive’s choice of whether to reschedule external debt as the outcome of an intra-governmental negotiation process. The executive’s necessity of a confidence vote from the legislature is found to provide the rationale for why some democracies may not renegotiate their foreign obligations. Empirically, parliamentary democracies are indeed less prone to reschedule their foreign liabilities or accumulate arrears on them. Most of the democracies that have been able to significantly reduce their debt/GNP ratio without a ’credit incident’ were parliamentary. Moreover, countries with stronger political checks on the executive and lower executive turnover have a lower rescheduling propensity. These results suggest that North andWeingast’s account of the evolution of institutions in 17th century England gives substantial mileage in understanding the international debt markets in the contemporary developing world.

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File URL: http://www2.warwick.ac.uk/fac/soc/economics/research/workingpapers/2008/working_paper_731.pdf
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Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 731.

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Length: 51 pages
Date of creation: 2005
Date of revision:
Handle: RePEc:wrk:warwec:731
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Web page: http://www2.warwick.ac.uk/fac/soc/economics/

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  1. Emanuel Kohlscheen & Stephen A O'Connell, 2006. "A Sovereign Debt Model with Trade Credit and Reserves," WEF Working Papers 0004, ESRC World Economy and Finance Research Programme, Birkbeck, University of London.
  2. Alesina, A. & Drazen, A., 1991. "Why Are Stabilizations Delayed?," Papers 6-91, Tel Aviv - the Sackler Institute of Economic Studies.
  3. Riboni, Alessandro, 2010. "Committees as Substitutes for Commitment," Economics Papers from University Paris Dauphine 123456789/7684, Paris Dauphine University.
  4. 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.
  5. Reinhart, Carmen & Rogoff, Kenneth & Savastano, Miguel, 2003. "Debt intolerance," MPRA Paper 13932, University Library of Munich, Germany.
  6. Bulow, J. & Rogoff, K., 1988. "Sovereign Debt: Is To Forgive To Forget?," Papers 411, Stockholm - International Economic Studies.
  7. Alessandro Riboni, 2004. "Time Consistency in Dynamic Bargaining: The Role of Committees as Substitutes for Commitment," 2004 Meeting Papers 684, Society for Economic Dynamics.
  8. Chang, Roberto, 2007. "Financial crises and political crises," Journal of Monetary Economics, Elsevier, vol. 54(8), pages 2409-2420, November.
  9. Block, Steven A. & Vaaler, Paul M., 2004. "The price of democracy: sovereign risk ratings, bond spreads and political business cycles in developing countries," Journal of International Money and Finance, Elsevier, vol. 23(6), pages 917-946, October.
  10. Bertschek, Irene & Lechner, Michael, 1998. "Convenient estimators for the panel probit model," Journal of Econometrics, Elsevier, vol. 87(2), pages 329-371, September.
  11. Daniel Kaufmann & Aart Kraay & Massimo Mastruzzi, 2003. "Governance Matters III: Governance Indicators for 1996-2002," Development and Comp Systems 0308001, EconWPA.
  12. North, Douglass C. & Weingast, Barry R., 1989. "Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England," The Journal of Economic History, Cambridge University Press, vol. 49(04), pages 803-832, December.
  13. repec:rus:hseeco:123922 is not listed on IDEAS
  14. W. J. Henisz, 2000. "The Institutional Environment for Economic Growth," Economics and Politics, Wiley Blackwell, vol. 12(1), pages 1-31, 03.
  15. Manuel Amador, 2004. "A Political Model Sovereign Debt Repayment," 2004 Meeting Papers 762, Society for Economic Dynamics.
  16. Torsten Persson & Guido Tabellini, 2005. "The Economic Effects of Constitutions," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262661926, June.
  17. Feld, Lars P. & Voigt, Stefan, 2003. "Economic growth and judicial independence: cross-country evidence using a new set of indicators," European Journal of Political Economy, Elsevier, vol. 19(3), pages 497-527, September.
  18. Rudi Dornbusch, 2001. "Malaysia: Was it Different?," NBER Working Papers 8325, National Bureau of Economic Research, Inc.
  19. Babbel, D.F., 1996. "Insuring Sovereign Debt Against Default," World Bank - Discussion Papers 328, World Bank.
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