One Reason Countries Pay Their Debts: Renegotiation and International Trade
نویسنده
چکیده
Abstract I estimate the effect of sovereign debt renegotiation on international trade. Sovereigns may fear the trade consequences of default; because creditors deter default, or because trade finance dries up. I use an empirical gravity model of trade and a panel data set covering fifty years, over 150 countries, and other factors that influence bilateral trade. Debt 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.
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