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Is it Punishment? Sovereign Defaults and the Decline in Trade

Jose Vicente Martinez and Guido Sandleris
Authors registered in the RePEc Author Service: Guido Sandleris

Business School Working Papers from Universidad Torcuato Di Tella

Abstract: Sovereign defaults are associated with declines in defaulting countries trade. Are these declines the result of trade sanctions as the trade sanctions argument of sovereign borrowing would suggest? We devise an empirical strategy to evaluate this issue based on the idea that if trade sanctions are causing the declines, bilateral trade with creditor countries should fall more than trade with other countries. We nd that this is not the case. The analysis does not yield evidence of broader punishment strategies including a league of major creditors either. These results contradict the predictions of the trade sanctions theory of sovereign borrowing.

Pages: 32 pages
Date: 2008
New Economics Papers: this item is included in nep-int
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Journal Article: Is it punishment? Sovereign defaults and the decline in trade (2011) Downloads
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