Optimal Debt? On the Insurance Value of International Debt Flows to Developing Countries |
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Authors: | Eduardo Levy Yeyati |
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Institution: | 1. Research Department of the Inter-American Development Bank, School of Business, Universidad Torcuato Di Tella and Barclays Capital, Mi?ones 2177, 1428, Buenos Aires, Argentina
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Abstract: | According to reputation models of sovereign debt, the incentives to repay are proportional to the income insurance benefits
provided by the access to international markets. This paper, however, documents that private net lending to developing countries
exhibits a procyclical or acyclical pattern, contradicting this premise. By contrast, official debt net flows exhibit a countercyclical
patter. In addition, the paper shows that (both current and past) defaults are associated with lower net debt flows. The findings
suggest that, while reputation models may explain the preferred creditor status enjoyed by official lenders, they cannot account
for the presence of sovereign debt markets in developing countries. |
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Keywords: | |
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