Sovereign Defaults and Expropriations : Empirical Regularities

This paper uses a large cross-country dataset to empirically examine factors associated with sovereign defaults on external private creditors and expropriation of foreign direct investments in developing countries since the 1970s. In the long run, sovereign defaults and expropriations are likely to occur in the same countries. In the short run, however, these events are uncorrelated. Defaults are more likely to occur following periods of rapid debt accumulation, when growth is low, and in countries with weak policy performance, and defaults are not strongly persistent over time. In contrast, expropriations are not systematically related to the level of foreign direct investment, to growth, or to policy performance. Expropriations are however less likely under right-wing governments, and are strongly persistent over time. There is also little evidence that a history of recent defaults is associated with expropriations, and vice versa. The paper discusses the implications of these findings for models that emphasize retaliation as means for sustaining sovereign borrowing and foreign investment in equilibrium, as well as the implications for political risk insurance against the two types of events.

Bibliographic Details

Main Authors:	Qian, Rong, Eden, Maya, Kraay, Aart
Language:	English en_US
Published:	World Bank, Washington, DC 2012-10
Subjects:	AFFILIATED ORGANIZATIONS, ARREARS, ARREARS ACCUMULATION, ASSETS, BANK BORROWERS, BILATERAL CREDITORS, BONDHOLDERS, BREACH OF CONTRACT, CAPITAL MARKETS, CASE OF DEFAULT, CASE OF DEFAULTS, CHECKS, CLAIM, COMMODITY, COMMODITY PRICES, CONSUMPTION SMOOTHING, COUNTRY FIXED EFFECT, COUNTRY FIXED EFFECTS, CREDITWORTHINESS, CURRENCY, CURRENCY DEVALUATION, DEBT, DEBT ACCUMULATION, DEBT CRISES, DEBT CRISIS, DEBT OUTSTANDING, DEBT RENEGOTIATION, DEBT SERVICING, DEBT STOCK, DEBTORS, DEBTS, DEFAULT RISK, DEMOCRACY, DEPENDENT, DEVELOPING COUNTRIES, DISBURSEMENTS, DIVESTMENT, DOLLAR VALUE, DUMMY VARIABLE, ECONOMIC DEVELOPMENT, ECONOMIC SHOCK, ENFORCEMENT MECHANISMS, EXCESSIVE DEBT, EXCESSIVE DEBT ACCUMULATION, EXPOSURE, EXPROPRIATION, EXPROPRIATIONS, EXTERNAL DEBT, FINANCIAL CRISES, FOREIGN ASSETS, FOREIGN COMPANIES, FOREIGN CREDITORS, FOREIGN DIRECT INVESTMENT, FOREIGN DIRECT INVESTMENTS, FOREIGN DIRECT INVESTORS, FOREIGN ENTERPRISE, FOREIGN ENTERPRISES, FOREIGN INVESTMENT, FOREIGN INVESTORS, GOVERNMENT REVENUE, GROWTH RATE, GROWTH RATES, HIGH DEBT, IMPLICIT CONTRACTS, INCOME, INCOME LEVEL, INCOME LEVELS, INDEBTED, INDEBTED POOR COUNTRIES, INSURANCE, INSURANCE CLAIMS, INSURER, INSURERS, INTERNATIONAL BANK, INTERNATIONAL CAPITAL, INTERNATIONAL CAPITAL MARKETS, INTERNATIONAL DEBT, INTERNATIONAL ECONOMICS, INTERNATIONAL MARKET, INTERNATIONAL RESERVE, INTERNATIONAL TRADE, LEGAL MECHANISM, LENDERS, LEVEL OF DEBT, LEVELS OF DEBT, LEVY, LOW-INCOME COUNTRIES, LOWER DEBT, MARKET ACCESS, MULTILATERAL CREDITORS, MULTILATERAL INVESTMENT GUARANTEE AGENCY, NATIONAL SECURITY, NATURAL RESOURCE, NATURAL RESOURCES, NPL, OIL PRICE, OPEN ECONOMY, OUTPUT, OUTPUT LOSS, POLICY RESPONSE, POLITICAL ECONOMY, POLITICAL RISK, POLITICAL RISK INSURANCE, POLITICAL SYSTEM, PORTFOLIO, PRIVATE CREDITORS, PRIVATE INVESTMENT, PRIVATIZATION, PRIVATIZATIONS, REMEDY, RENEGOTIATION, REPAYMENT, REPUDIATION, REPUTATIONS, RESERVE, RETURNS, RISK OF DEFAULT, RISK OF EXPROPRIATION, RISK OF EXPROPRIATIONS, SECONDARY MARKETS, SEIZURES, SHORT-TERM DEBT, SOVEREIGN DEBT, SOVEREIGN DEBT MARKETS, SOVEREIGN DEFAULT, SOVEREIGN DEFAULTS, SOVEREIGN RISK, STOCK OF DEBT, STOCKS, SYSTEMIC RISK, THIRD WORLD, TIME OF DEFAULT, TURNOVER, VALUE OF DEBT, VOLATILITY,
Online Access:	http://documents.worldbank.org/curated/en/2012/10/16793520/sovereign-defaults-expropriations-empirical-regularities https://hdl.handle.net/10986/12055
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