Is it Punishment? Sovereign Defaults and the Decline in Trade
Sovereign defaults are associated with declines in defaulting countries trade. Are these declines the result of trade sanctions as the trade sanctions argument of sovereign borrowing would suggest? We devise an empirical strategy to evaluate this issue based on the idea that if trade sanctions are causing the declines, bilateral trade with creditor countries should fall more than trade with other countries. We nd that this is not the case. The analysis does not yield evidence of broader punishment strategies including a league of major creditors either. These results contradict the predictions of the trade sanctions theory of sovereign borrowing.
Year of publication: |
2008
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Authors: | Martinez, Jose Vicente ; Sandleris, Guido |
Institutions: | Escuela de Negocios, Universidad Torcuato Di Tella |
Saved in:
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