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Migration and sovereign default risk

George Alessandria (), Yan Bai and Minjie Deng

Journal of Monetary Economics, 2020, vol. 113, issue C, 1-22

Abstract: During sovereign debt crises, countries experience persistent economic declines, spiking spreads, and outflows of capital and workers. To account for these salient features, we develop a sovereign default model with migration and capital accumulation. The model has a two-way feedback. Default risk lowers workers’ welfare and induces emigration, which in turn intensifies default risk by lowering tax base and investment. Compared with a no-migration model, our model produces higher default risk, lower investment, and a more profound and prolonged recession. We find that migration accounts for almost all of the lack of recovery in GDP during the recent Spanish debt crisis.

Keywords: Sovereign default; European debt crisis; Migration; Capital accumulation; International capital flows (search for similar items in EconPapers)
JEL-codes: F22 F34 F41 F43 J61 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:113:y:2020:i:c:p:1-22

DOI: 10.1016/j.jmoneco.2020.04.007

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