Working Paper: NBER ID: w2623
Authors: Jeremy Bulow; Kenneth Rogoff
Abstract: International lending to a less-developed country cannot be based on the debtor's reputation for making repayments. That is, loans to LDCs will not be made or repaid unless foreign creditors have legal or other direct sanctions they can exercise against a sovereign debtor who defaults Even if some lending is feasible because of direct sanctions, having a reputation for repayment in no way enhances a small LDC's ability to borrow.
Keywords: Sovereign debt; International lending; Reputation; Legal rights
JEL Codes: F34; H63
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Creditor legal rights (G33) | Ability of LDCs to access international capital markets (F34) |
| Reputation for repayment (F34) | Borrowing capacity (G51) |
| Default (Y70) | Future borrowing opportunities (G51) |
| Lack of direct means to punish defaults (G33) | Shift to cash-in-advance contracts (E41) |
| Type of contract (K12) | Country’s financial behavior post-default (F65) |