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Does debt relief “irresistibly attract banks as honey attracts bees”? Evidence from low-income countries’ debt relief programs

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Date
2021
Dewey
Croissance et développement économiques
Sujet
Debt relief; International credit markets; Sovereign debt; Low-income countries
JEL code
O.O3.O38; O.O1.O19; F.F3.F35; F.F3.F34; H.H6.H63
Journal issue
International Review of Law and Economics
Volume
66
Number
June 2021
Publication date
06-2021
Article pages
105978
Publisher
Elsevier
DOI
http://dx.doi.org/10.1016/j.irle.2021.105978
URI
https://basepub.dauphine.fr/handle/123456789/21606
Collections
  • LEDa : Publications
Metadata
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Author
Ferry, Marin
1004415 Equipe de Recherche sur l’Utilisation des Données Individuelles en lien avec la Théorie Economique [ERUDITE]
Raffinot, Marc
12772 Développement, institutions et analyses de long terme [DIAL]
559342 Laboratoire d'Economie de Dauphine [LEDa]
Venet, Baptiste
163511 Laboratoire d'Economie de Dauphine [LEDa]
Type
Article accepté pour publication ou publié
Abstract (EN)
The Covid-19 crisis has recently rekindled discussions about debt relief, leading official lenders to grant a moratorium on low-income countries’ external public debt service. Private creditors, which had massively invested in LICs (especially in Africa), have been so far relatively spared. But would they keep lending to these countries if a new wave of debt write-offs were to occur? Building on the two largest debt relief programs for LICs, namely the Heavily Indebted Poor Countries Initiative (HIPC) and the Multilateral Debt Relief Initiative (MDRI), we investigate whether debt relief leads international private creditors to withdraw or to resume lending to beneficiary governments. Using a difference-in-differences approach, our results suggest that debt relief has fostered borrowing from private creditors, and identify the absence of reputational effects and the short-term horizon of private creditors as the key drivers that made renewed access to the credit market possible.

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