A Gravity Model of Sovereign Lending: Trade, Default and Credit
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NBER Working Paper No. 9285
Issued in October 2002
NBER Program(s): IFM
One reason why countries service their external debts is the fear that default might lead to shrinkage of international trade. If so, then creditors should systematically lend more to countries with which they share closer trade links. We develop a simple theoretical model to capture this intuition, then test and corroborate this idea.
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