States as Financiers: International Lending in War and Peace

Sebastian Horn, Carmen Reinhart and Christoph Trebesch

No 21556, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: States are major international financiers, but their role is poorly understood. We study state-driven cross-border lending over two centuries using a new database covering 1.2 million official loans and grants by 134 governments and 70 multilateral institutions since 1790. We document a dual, state-contingent structure of international credit. In normal times, private creditors dominate cross-border lending. In adverse states of the world, such as wars and financial crises, official creditors step in, at times on a massive scale. These official flows are driven by great powers, are highly subsidized, and are largely absent from canonical models in international macroeconomics.

Keywords: Sovereign debt; Capital flows; Financial crises; Bailouts; War finance; Disaster risk (search for similar items in EconPapers)
JEL-codes: E42 F33 F34 F35 F36 G01 G20 N1 N2 (search for similar items in EconPapers)
Date: 2026-05
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