Economic sanctions and debt default

【Author】 Apeti, Ablam Estel; Edoh, Eyah Denise

【Source】EUROPEAN JOURNAL OF POLITICAL ECONOMY

【影响因子】2.343

【Abstract】This paper analyzes the effect of US economic sanctions on sovereign debt default across 118 developing countries from 1980 to 2018. We use entropy balancing method, and provide robust evidence that US sanctions increase sovereign debt default in the targeted states. This finding withstands several robustness tests, including alternative specifications and databases, and alternative estimation methods. The results also reveal some heterogeneity depending on the type of sanctions (for example, trade versus financial sanctions), on whether they are imposed unilaterally or multilaterally, on the severity of the sanctions, on the geographical distance from the United States, the time since sanctions were imposed, and some structural characteristics. In addition, we find that the development of cryptocurrencies reduces the effect of sanctions, and that failed sanctions have a greater effect on default. The compositon effect based on the type of debt in default shows that the effect of US sanctions is only observed on the default on external debt and not on that of internal debt. Next, we identify three main channels through which sanctions trigger sovereign risk; namely economic growth contraction, the occurrence of banking crisis and reduced access to international financial market. Finally, we explore the effect of other sanctions, notably those of the European Union and the United Nations, and find that these sanctions also raise the probability of sovereign debt default.

【Keywords】Economic sanctions; Sovereign debt default; Entropy balancing

【发表时间】2024 DEC

【收录时间】2024-09-23

【文献类型】案例研究

【主题类别】

区块链治理-市场治理-区块链金融监管