Is it Punishment? Sovereign Defaults and the Decline in Trade

Martinez, Jose Vicente and Sandleris, Guido (2011) Is it Punishment? Sovereign Defaults and the Decline in Trade. Journal of International Money and Finance, 30 (6). pp. 909-930.


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 find that this is not the case. The analysis does not yield much 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.

Item Type: Article
Keywords: Sovereign debt; Sovereign default; Bilateral trade; Sanctions; finance
Subject(s): Finance
Date Deposited: 26 Feb 2012 12:12
Last Modified: 27 Feb 2017 14:29
Funders: N/A

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