TY  - JOUR
AU  - Rose,Andrew K.
TI  - One Reason Countries Pay their Debts: Renegotiation and International Trade
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 8853
PY  - 2002
Y2  - March 2002
UR  - http://www.nber.org/papers/w8853
L1  - http://www.nber.org/papers/w8853.pdf
N1  - Author contact info:
Andrew K. Rose
Haas School of Business Administration
University of California, Berkeley
Berkeley, CA 94720-1900
Tel: 510/642-6609
Fax: 510/642-4700
E-Mail: arose@haas.berkeley.edu
AB  - 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 over 200 trading partners. The model controls for a host of factors that influence bilateral trade flows, including the incidence of IMF 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 eight percent a year and persists for around fifteen years.
ER  -