Financial Deregulation, Private Foreign Borrowing and the Risk of Sovereign Default: A Political-Economic Analysis

Philipp Harms

Frontiers in Finance and Economics, 2010, vol. 7, issue 1, 82-100

Abstract: It is often argued that financial liberalization and large external borrowing by the private sector bode ill for sovereign creditworthiness. In this paper, we highlight a channel through which financial liberalization reduces the risk that a developing country’s government defaults on its foreign debt. We present a simple model in which a deregulation-induced surge in private borrowing raises the political costs of default and reduces a government’s incentive to deny repayment

Keywords: International Investment; Sovereign Risk. (search for similar items in EconPapers)
JEL-codes: F34 O16 (search for similar items in EconPapers)
Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:ffe:journl:v:7:y:2010:i:1:p:82-100

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