Working Paper: NBER ID: w0925
Authors: Jeffrey Sachs; Daniel Cohen
Abstract: This paper presents a theoretical model to describe the effects of default risk on international lending to LDC sovereign borrowers. The threat of defaults in international lending is shown to give rise to many characteristics of the syndicated loan market: (1) quantity rationing of loans; (2) LDC policies designed to enhance creditworthiness; (3) prevalence of short maturities on international loans; and (4) a prevalence of bank lending relative to bond-market lending
Keywords: default risk; international lending; LDCs; creditworthiness
JEL Codes: F34; G21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| default risk (G33) | quantity rationing of loans (D45) |
| default risk (G33) | LDC policies to enhance creditworthiness (F34) |
| default risk (G33) | prevalence of short maturities on loans (G21) |
| default risk (G33) | reliance on bank lending over bond market lending (G21) |
| evolution of lending practices (G21) | borrower behavior (G51) |