Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/73070
Authors: 
Brandt, Jana
Jorra, Markus
Year of Publication: 
2012
Series/Report no.: 
Joint Discussion Paper Series in Economics 20-2012
Abstract: 
This paper empirically investigates whether donor countries punish sovereign defaults by reducing foreign aid ows. Our findings reject the hypothesis formulated in the theoretical literature that a default leads to a loss of foreign aid for the defaulting country. Creditor countries directly affected by the default do not reduce their aid disbursements. Hence, foreign aid is not used as a punishment instrument. Neither can it therefore serve as an enforcement mechanism for international debt contracts. Furthermore, other donors even raise the amount of development assistance allocated to the delinquent country by about 15% on average. Overall the amount of foreign aid given to the defaulting country increases by 6.4%.
Subjects: 
Sovereign defaults
Default costs
Foreign aid
Sanctions
JEL: 
F34
F35
C23
C24
Document Type: 
Working Paper

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