One Reason Countries Pay Their Debts: Renegotiation and International Trade

Andrew Rose

No 3157, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This Paper estimates the effect of sovereign debt renegotiation on international trade. Sovereign default may be associated with a subsequent decline in international trade either because creditors want to deter default by debtors, or because trade finance dries up after default. To estimate the effect, I use an empirical gravity model of bilateral trade and a large panel data set covering fifty years and over 200 trading partners. The model controls for a host of factors that influence bilateral trade flows, including the incidence of IMF programs. Using the dates of sovereign debt renegotiations conducted through the Paris Club as a proxy measure for sovereign default, I find that renegotiation is associated with an economically and statistically significant decline in bilateral trade between a debtor and its creditors. The decline in bilateral trade is approximately eight % a year and persists for around fifteen years.

Keywords: Empirical; Sovereign; Default; Bilateral; Panel; Gravity; Paris; Club; Rescheduling (search for similar items in EconPapers)
JEL-codes: F10 F34 (search for similar items in EconPapers)
Date: 2002-01
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Citations: View citations in EconPapers (64)

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Related works:
Journal Article: One reason countries pay their debts: renegotiation and international trade (2005)
Working Paper: One Reason Countries Pay their Debts: Renegotiation and International Trade (2002)
Working Paper: One Reason Countries Pay Their Debts: Renegotiation and International Trade (2002)
Working Paper: One Reason Countries Pay their Debts: Renegotiation and International Trade (2002)
Working Paper: One reason countries pay their debts: renegotiation and international trade (2001)
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