Sovereign defaults and expropriations : empirical regularities, Vol. 1 of 1

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Home > Data & Research > Research > Author Profile > Report Details

Sovereign defaults and expropriations : empirical regularities

Author:	Eden, Maya; Kraay, Aart; Qian, Rong;	Collection Title:	Policy Research working paper ; no. WPS 6218
Country:	World;	Date Stored:	2012/10/03
Document Date:	2012/10/01	Document Type:	Policy Research Working Paper
Language:	English	Region:	The World Region
Report Number:	WPS6218	SubTopics:	Bankruptcy and Resolution of Financial Distress; External Debt; Emerging Markets; Debt Markets; Investment and Investment Climate
Volume No:	1 of 1

Summary: 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.


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