Preliminary tests are conducted on the Cahill and Isely (1998) model. In this model, the level of external debt is partially determined by foreign aid. Specifically, this model suggests that the level of external debt for an LDC is positively related to GDP and aid, but is negatively related to...

Traditional models of sovreign debt and default focus on the purely economic costs and benefits of borrowing and default. The model developed in this paper shows that political importance, in the face of possible political instability, is also important when determining the amount of privately...