Convergence in sovereign debt defaults: quantifying the roles of institutions

Mita Bhattacharya*, John Inekwe

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

In this study, using an ex ante measure, we examine the convergence patterns in sovereign defaults among 101 developing countries for the period from 1990 to 2015. We employ the club convergence algorithm to determine convergence paths across countries and examine the role of institutions in shaping the observed convergence patterns. The merging of clubs reveals three distinct convergent sub-clubs. Countries in each of these sub-clubs tend to exhibit a similar pattern of long-run convergence in cases of sovereign debt default. Countries with better institutions are less likely to belong to a club with greater risks of sovereign defaults by 7% points. Unlike trade openness, levels of external debt, inflation and current account balance increase the probability of default in these economies.

Original languageEnglish
Pages (from-to)792-811
Number of pages20
JournalOxford Bulletin of Economics and Statistics
Volume83
Issue number3
Early online date7 Jan 2021
DOIs
Publication statusPublished - Jun 2021

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