Supersanctions and Sovereign Debt Repayment

Abstract

and the 5 th World Cliometric Congress for comments and suggestions. We also thank Annalisa Yenne and Justin Jones for valuable research assistance, and the National Science Foundation, Leavey Fund, and the Dean Witter Foundation for financial support. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.

Sovereign defaulters: Do international capital markets punish them?

“…Using the same data but a different econometric model, Martinez and Sandleris (2008) argue that the decline in trade is not confined to the creditor-defaulter pair, casting doubts on the punishment mechanism. Finally, Mitchener and Weidenmier (2005) favor the view that Super-sanctions like military aggression by creditor countries and the forceful seizure of foreign currency-generating assets (e.g. the national customs administration) are the most effective mechanisms for deterring sovereign default, rather than reductions in bilateral trade.…”

“…This would happen because a country that defaults is likely to be undergoing a series of economic difficulties that could also be captured by the default dummy variable. Recent contributions to the literature have attempted to ameliorate this identification problem using bilateral trade data (see Rose (2005), Mitchener and Weidenmier (2005) and Martinez and Sandleris (2008)). Even though these papers advance in the identification of a punishment mechanism, they do not provide conclusive evidence for the existence of a sanction used against insolvent countries.…”

Supersanctions and sovereign debt repayment

“…For more on these differences, see Correa (1926) and Finnemore (2003). 7 For a discussion of the role of trade and private creditor sanctions in regulating sovereign debt during the gold standard era, see Mitchener and Weidenmier (2005b).…”

“…15 We also ran a series of robustness checks not reported in the text, but described in Mitchener and Weidenmier (2005b). For example, we tested to see if the decline in the market price of risk can explain the fall in sovereign yield spreads for our sample of merging market debt defaulters.…”

“…We use primary source materials from the late-nineteenth century and early-twentieth century such as the Annual Reports of the Corporation of Foreign Bondholders, Fenn's on the Funds, and Fitch (1918), in addition to the secondary literature, to analyze how contemporaries viewed these episodes. We refer the reader to Mitchener and Weidenmier (2005b) for a more thorough and detailed account of the intervention and punishment mechanisms for all 12 instances of supersanctions during the classical gold standard period. Sources: Angell (1933), Borchard (1951), and Suter and Stamm (1992).…”