The Cyclicality of Official Bilateral Lending: Which Cycle do Flows Follow?

30 Pages Posted: 21 Sep 2022

See all articles by Leopoldo Avellan

Leopoldo Avellan

Inter-American Development Bank (IDB)

Arturo José Galindo

Inter-American Development Bank

Tomás Gómez

Inter-American Development Bank (IDB)

Giulia Lotti

Inter-American Development Bank (IDB)

Date Written: September 9, 2022

Abstract

Using a large panel of official bilateral loan data for 111 borrowing countries and 78 lending countries between 1980 and 2020, the paper shows that international government borrowing from bilateral sources is a-cyclical with respect to the business cycle of the borrower but procyclical with respect to the cycle of the lending country. This holds in the case of lenders from advanced economies and lenders from China, currently the largest supplier of official bilateral loans to the average developing country. We find this form of procyclicality mostly in the case of middle-income recipient countries and in most regions of the world. We also find that bilateral loans follow economic links captured through bilateral trade, and political ties measured as the closeness of votes in the United Nations. The results are consistent across a battery of robustness tests.

Keywords: Bilateral debt, cyclicality, capital flows, international government debt

JEL Classification: E60, F32, F34

Suggested Citation

Avellan, Leopoldo and Galindo, Arturo José and Gómez, Tomás and Lotti, Giulia, The Cyclicality of Official Bilateral Lending: Which Cycle do Flows Follow? (September 9, 2022). Available at SSRN: https://ssrn.com/abstract=4214701 or http://dx.doi.org/10.2139/ssrn.4214701

Leopoldo Avellan

Inter-American Development Bank (IDB)

Arturo José Galindo (Contact Author)

Inter-American Development Bank ( email )

1300 New York Avenue NW
Washington, DC 20577
United States

Tomás Gómez

Inter-American Development Bank (IDB)

Giulia Lotti

Inter-American Development Bank (IDB) ( email )

1300 New York Avenue NW
Washington, DC 20577
United States

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