Sovereign Default and International Trade

Charles Serfaty ()
Additional contact information
Charles Serfaty: Banque de France

IMF Economic Review, 2024, vol. 72, issue 4, No 6, 1449-1501

Abstract: Abstract Evidence suggests that sovereign defaults disrupt international trade. As a consequence, countries that are more open have more to lose from a sovereign default and are less inclined to renege on their debt. In turn, lenders should trust more open countries and charge them with lower interest rate. As a consequence of those lower rates, the country should also borrow more debt as it gets more open. This paper formalizes this idea in a sovereign debt model á la (Eaton and Gersovitz in Rev Econ Stud 48(2):289–309, 1981), proves these theoretical relations and quantifies them in a calibrated model. This paper also provides evidence suggesting a causal relationship between trade and debt, using gravitational instrumental variables from Feyrer (Am Econ J Appl Econ 11(4):1–35, 2019) as a source for exogenous variation in trade openness. The results suggest that, when imports-to-GDP ratio increases by 1%, debt-to-GDP ratio also increases by 1%, and default risks do not increase. These last results are consistent with the quantitative results from the calibrated model.

JEL-codes: F34 F41 F44 H63 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1057/s41308-023-00230-x Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:imfecr:v:72:y:2024:i:4:d:10.1057_s41308-023-00230-x

Ordering information: This journal article can be ordered from
http://www.springer. ... cs/journal/41308/PS2

DOI: 10.1057/s41308-023-00230-x

Access Statistics for this article

More articles in IMF Economic Review from Palgrave Macmillan, International Monetary Fund
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().