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| Title: | | One reason countries pay their debts: Renegotiation and international trade  |
| Authors: | | Rose, Andrew K. |
| Issue Date: | | 2001 |
| Series/Report no.: | | Staff Report, Federal Reserve Bank of New York 142 |
| 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 more than 200 trading partners. The model controls for a host of factors that influence bilateral trade flows, including the incidence of International Monetary Fund 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 8 percent a year and persists for about fifteen years. |
| Subjects: | | empirical, sovereign, default, bilateral, panel, gravity, Paris Club, rescheduling |
| JEL: | | F10 F34 |
| Document Type: | | Working Paper |
| Appears in Collections: | | Staff Reports, Federal Reserve Bank of New York
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