Trade Dynamics in Sovereign Debt Crises

Tamon Asonuma, Marcos Chamon, Yasumasa Morito and Akira Sasahara

No 2025/240, IMF Working Papers from International Monetary Fund

Abstract: Sovereign debt restructurings can have large impacts on trade, with a significant compression of imports and a more ambiguous effect on exports. We show that the magnitude of that impact depends on whether restructurings preempt a default or take place after payments have been missed, with the latter associated with longer and deeper crises. Import compression is significantly higher following post-default restructurings, which also tend to be associated with higher exports relative to preemptive restructurings. This is consistent with the need for a larger external adjustment following a default. We also show how the effect varies across types of goods, and a larger impact when initial aggregate domestic demand in the debtor’s economy is high.

Keywords: Sovereign Debt; Sovereign Default; Sovereign Debt Restructuring; Trade; Export; Imports; Domestic Aggregate Demand; IMF working papers; trade dynamics; Aipw estimation; trade datum; Primary Commodity; Debt restructuring; Exports; Global (search for similar items in EconPapers)
Pages: 33
Date: 2025-11-14
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