Working Paper: CEPR ID: DP300
Authors: Barry Eichengreen; Richard Portes
Abstract: This paper summarizes and extends the conclusions of a series of papers on the interwar experience of sovereign borrowing, default and debt readjustment. In explaining the incidence and extent of default, we highlight the importance of a range of factors, both economic and political. We find evidence that countries that interrupted debt service recovered more quickly from the Depression; were able subsequently to render substantially reduced transfers to their creditors; and did not experience access to capital markets in the 1940s and 1950s that was any more restricted than that available to debtors who fully serviced their debts throughout. Attempts at global schemes to short cut protracted bilateral negotiations foundered on disagreements over the funding and control of such schemes, casting doubt on the prospects for such global plans in the 1990s.
Keywords: international debt; sovereign borrowing; default
JEL Codes: 040; 411; 433
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| interruption of debt service (F34) | economic recovery (E65) |
| default (Y70) | fiscal expansion (E62) |
| default (Y70) | monetary reflation (E31) |
| default (Y70) | capital market access post-World War II (N22) |
| debt management strategies (H63) | macroeconomic performance (E66) |
| political ties and economic conditions (F55) | default decisions (D91) |