The Sectorial Effects of Sovereign Default
35 Pages Posted: 19 Dec 2008
Date Written: May 2008
Abstract
This paper explores the linkage between sovereign debt crises and manufacturing industry growth using a difference-in-difference methodology. Industries facing tough import competition perform relatively better after a sovereign default. Export-oriented sectors grow more slowly around default times. These two facts are consistent with the theories stressing trade sanctions as the main cost of sovereign defaults. Industries characterized by high physical capital intensity and asset tangibility tend to suffer less from default episodes. All these effects reach their maximum intensity two to four years after the default event.
Keywords: Sovereign debt, Default, Industry growth
JEL Classification: F34, O47
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