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Title:One reason countries pay their debts: Renegotiation and international trade PDF Logo
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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