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Why Not Default?$
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Jerome Roos

Print publication date: 2019

Print ISBN-13: 9780691180106

Published to Princeton Scholarship Online: May 2019

DOI: 10.23943/princeton/9780691180106.001.0001

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Why Do Countries Repay Their Debts?

Why Do Countries Repay Their Debts?

(p.21) One Why Do Countries Repay Their Debts?
Why Not Default?

Jerome Roos

Princeton University Press

The striking puzzle at the heart of international lending has long been known as the “enforcement problem” of cross-border debt contracts: clearly there is some kind of cross-border enforcement at work, but the precise mechanism through which it operates is not immediately observable, and economists still do not understand how exactly it works. This chapter discusses the four conventional explanations of debtor compliance found in the economics literature, and assesses their validity in light of the available evidence. The four explanations center on (1) the borrower's long-term reputation; (2) legal and trade sanctions; (3) democratic institutions; and (4) spillover costs.

Keywords:   international lending, debtor compliance, external debt, sovereign debt, long-term reputation, trade sanctions, democratic institutions, spillover costs

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