How does private foreign borrowing affect the risk of sovereign default in developing countries?

Oya Celasun () and Philipp Harms
Additional contact information
Oya Celasun: International Monetary Fund

No 07.04, Working Papers from Swiss National Bank, Study Center Gerzensee

Abstract: We argue that increased foreign borrowing by the private sector reduces the risk that a developing country's government defaults on its foreign debt. We present a simple model in which private foreign borrowing reflects a surge of private entrepreneurship. A larger "entrepreneurial class" raises the political costs of default and reduces the government's incentive to deny repayment. The results of our empirical analysis support the model's key hypothesis.

Pages: 43 pages
Date: 2007-04
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.szgerzensee.ch/fileadmin/Dateien_Anwend ... g_papers/wp-0704.pdf Full text (application/pdf)
None

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:szg:worpap:0704

Ordering information: This working paper can be ordered from
Studienzentrum Gerzensee, Postfach 21, 3115 Gerzensee

The price is Free.

Access Statistics for this paper

More papers in Working Papers from Swiss National Bank, Study Center Gerzensee Studienzentrum Gerzensee, Postfach 21, 3115 Gerzensee.
Bibliographic data for series maintained by library ().