The determinants of sovereign default: A sensitivity analysis

Avik Chakrabarti () and Hussein Zeaiter

International Review of Economics & Finance, 2014, vol. 33, issue C, 300-318

Abstract: A vast and growing empirical literature aims at identifying key determinants of sovereign default. The literature is extensive and controversial. Can policy-makers use this body of research to learn anything that can help reduce the likelihood of sovereign default? We use a variant of Extreme Bound Analysis (EBA) to examine if any of the conclusions from the existing studies on the determinants of sovereign default is robust to small changes in the conditioning information set. Our EBA, spanning 190 countries over 1970–2010, upholds the robustness of the observed association between sovereign default and credit worthiness, growth, leverage on export earnings, debt service ratio, reserves, inflation, exchange rate, trade deficit, corruption, and democratic accountability. At the same time, our EBA reveals that the correlations between sovereign default and several of the controversial variables (namely, openness, central bank liabilities, interest payments, cost of borrowing, imports, exports, per capita GNP, and government stability) are highly sensitive to small alterations in the conditioning information set.

Keywords: Sovereign debt; Default; Extreme bound analysis; Panel (search for similar items in EconPapers)
JEL-codes: F34 H63 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (26)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:33:y:2014:i:c:p:300-318

DOI: 10.1016/j.iref.2014.06.003

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