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Coups d’état and the cost of debt

Hippolyte Balima ()

Journal of Comparative Economics, 2020, vol. 48, issue 3, 509-528

Abstract: This paper extends the literature on the economic consequences of coups d’état by examining their impact on the cost of debt for sovereigns and, respectively, the likelihood of experiencing a sovereign default. Using a monthly panel dataset covering 134 countries over the period 1990 to 2014 and after employing the entropy balancing methodology, I find that the occurrence of coups d’état significantly increases the cost of debt for sovereigns and their likelihood of experiencing sovereign defaults. I demonstrate that this finding is extremely robust to different specifications, potential omitted variables, and the use of falsification tests. Moreover, I show that the impact of coups d’état on the cost of debt varies systematically depending on the political regime, the types of coups d’état, and the sovereign credit rating grade. Finally, I provide suggestive evidence that the induced drop in the real economic growth, the changes in the willingness function to honor contracts and irrational exuberance are the root of increased sovereign debt cost and the likelihood of defaults following coups d’état.

Keywords: Coups d’état; Sovereign credit ratings; Sovereign defaults (search for similar items in EconPapers)
JEL-codes: D72 F34 G24 H56 H63 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.jce.2020.04.001

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Handle: RePEc:eee:jcecon:v:48:y:2020:i:3:p:509-528