Sovereign Defaults, Business Cycles and Economic Growth in Latin America, 1870-2012

37 Pages Posted: 19 Aug 2013

See all articles by Tjeerd M. Boonman

Tjeerd M. Boonman

Banco de Mexico - Financial Stability Division

Date Written: August 2013

Abstract

Sovereign debt crises have regained attention since the recent crises in several European countries. This paper focuses on a particular aspect of the debt crisis literature: the impact of sovereign default on economic growth. Previous research agrees on the negative impact, but not on size and duration. We are particularly interested in the heterogeneity of crisis impacts: Why are some crises deeper and longer than others? And what is the role of business cycles?

We analyze four Latin American countries -- Argentina, Brazil, Chile and Mexico -- for the period 1870-2012, covering 14 sovereign debt defaults. We find that most sovereign defaults start in recessions, and in unfavorable international circumstances. Economic growth is heavily affected in the year of the default and the year after. Then economic growth picks up, but recovery is far from smooth, including periods of recurrent negative growth. We observe strong heterogeneity in the impact, which we attribute to commodity price changes, economic growth and government expenditure in the run-up to the crisis.

Keywords: sovereign debt crises, Latin America, economic impact of crises, business cycles

JEL Classification: C25, G01, N26

Suggested Citation

Boonman, Tjeerd M., Sovereign Defaults, Business Cycles and Economic Growth in Latin America, 1870-2012 (August 2013). Available at SSRN: https://ssrn.com/abstract=2312153 or http://dx.doi.org/10.2139/ssrn.2312153

Tjeerd M. Boonman (Contact Author)

Banco de Mexico - Financial Stability Division ( email )

Av. 5 de Mayo 18
Piso 4
Mexico City, 06059
Mexico
+52 55 5237 2000 ext 2047 (Phone)

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