Boon or Burden? The Effect of Private Sector Debt on the Risk of Sovereign Default in Developing Countries

19 Pages Posted: 12 Jan 2011

See all articles by Oya Celasun

Oya Celasun

International Monetary Fund (IMF) - Research Department

Philipp Harms

Study Centre Gerzensee

Abstract

We explore how the share of the private sector in total external debt affects perceived creditworthiness and the likelihood of sovereign default in developing countries. While there are theoretical arguments both in favor and against a stabilizing role of private-sector borrowing, the evidence supports the notion that a greater share of the private sector in total external debt is associated with a reduced likelihood of sovereign default.

JEL Classification: F34, O16

Suggested Citation

Celasun, Oya and Harms, Philipp, Boon or Burden? The Effect of Private Sector Debt on the Risk of Sovereign Default in Developing Countries. Economic Inquiry, Vol. 49, No. 1, pp. 70-88, 2011, Available at SSRN: https://ssrn.com/abstract=1738119 or http://dx.doi.org/10.1111/j.1465-7295.2010.00267.x

Oya Celasun (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Philipp Harms

Study Centre Gerzensee ( email )

CH-3115 Gerzensee
Switzerland

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