Why Do Some Countries Default More Often Than Others? The Role of Institutions
This paper examines how a country's weak institutions and polarized government can affect the likelihood of its default on sovereign debt. Using a data set of 90 countries, it shows that strong institutions are associated with fewer sovereign...
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| Format: | Policy Research Working Paper |
| Language: | English |
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2012
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| Online Access: | http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20120312132447 http://hdl.handle.net/10986/3282 |
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okr-10986-3282 |
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oai_dc |
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Digital Repository |
| institution_category |
Foreign Institution |
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Digital Repositories |
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World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English |
| topic |
ACCESS TO CREDIT ADVANCED ECONOMIES AGGREGATE COST AGGREGATE DEBT AMOUNT OF DEBT ARREARS ASSETS AVERAGE DEBT BAILOUTS BANK POLICY BANKING CRISES BARGAINING POWER BARGAINING POWERS BOND BOND PRICE BOND PRICES BORROWER BORROWING COUNTRY BUDGET CONSTRAINT BUDGET CONSTRAINTS BUREAUCRATIC QUALITY BUSINESS CYCLE CAPITAL FLOWS CAPITAL MARKET CASE OF DEFAULT CENTRAL BANK CENTRAL BANK INDEPENDENCE CLAIM CONSUMPTION SMOOTHING CORRUPTION COST STRUCTURE COUNTRY RISK CREDIBILITY CREDIT MARKET CREDITORS CURRENT ACCOUNT DEBT CONTRACTS DEBT CRISES DEBT CRISIS DEBT LEVEL DEBT OBLIGATIONS DEBT POLICIES DEBT POLICY DEBT REPAYMENT DEBTS DEFAULT COST DEFAULT COSTS DEFAULT LOSS DEFAULT PENALTY DEFAULT PROBABILITIES DEFAULT PROBABILITY DEFAULT RISK DEFAULTER DEFAULTERS DEFICITS DEMOCRACIES DEPENDENT DEVELOPING COUNTRIES DEVELOPMENT BANK DEVELOPMENT ECONOMICS DEVELOPMENT POLICY DISCOUNT BONDS DUMMY VARIABLE DURABLE ECONOMIC ACTIVITY ECONOMIC GROWTH ECONOMIC POLICY EMERGING ECONOMIES EMPLOYER EQUILIBRIUM ETHNIC GROUPS EVENT OF DEFAULT EXCLUSION EXPENDITURE EXPENDITURES EXPROPRIATION EXPROPRIATION RISK EXTERNAL BORROWING EXTERNAL DEBT EXTERNAL SHOCKS FEDERAL RESERVE FEDERAL RESERVE BANK FINANCIAL AFFAIRS FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL RELATIONSHIP FINANCING COST FINANCING COSTS FISCAL DECENTRALIZATION FISCAL DEFICIT FISCAL DEFICITS FISCAL DISCIPLINE FISCAL POLICIES FISCAL POLICY FISCAL REFORMS FOREIGN INVESTORS FOREIGN LENDERS FULL REPAYMENT FUNCTIONAL FORMS GDP PER CAPITA GINI COEFFICIENT GLOBAL DEVELOPMENT FINANCE GOVERNANCE INDICATORS GOVERNMENT DEBT GOVERNMENT DEFAULT GOVERNMENT EXPENDITURE GOVERNMENT POLICIES GOVERNMENT SPENDING HARD BUDGET HIGH DEBT INCOME INCOME INEQUALITY INCOME LEVEL INCOMES INDUSTRIALIZATION INEFFICIENCY INFLATION INSTITUTIONAL ARRANGEMENTS INSTITUTIONAL BARRIERS INSTITUTIONAL CONSTRAINTS INSTITUTIONAL ENVIRONMENT INTEREST PAYMENT INTEREST RATES INTERGOVERNMENTAL TRANSFERS INTERNATIONAL BANK INTERNATIONAL CAPITAL INTERNATIONAL CAPITAL MARKET INTERNATIONAL CAPITAL MARKETS INTERNATIONAL CREDIT INTERNATIONAL DEVELOPMENT INTERNATIONAL ECONOMICS INTERNATIONAL INVESTORS JURISDICTIONS LABOR UNIONS LEGAL FRAMEWORK LENDER LENDERS LEVEL OF DEBT LEVELS OF DEBT LEVY LIQUIDATION LOCAL GOVERNMENTS LOW-INCOME COUNTRIES MACROECONOMIC POLICIES MACROECONOMICS MARGINAL COST MARKET FOR BONDS MARKET MECHANISMS MONETARY POLICY NATIONAL INCOME NEGATIVE EXTERNALITIES NEGATIVE EXTERNALITY NEGOTIATIONS OPEN ECONOMY OPTIMIZATION ORIGINAL CONTRACT ORIGINAL OBLIGATION OUTPUT OUTPUT LOSS PARTICULAR COUNTRY POLITICAL ECONOMY POLITICAL REGIME POLITICAL SYSTEM PROBABILITY OF DEFAULT PROPERTY RIGHTS PUBLIC DEBT PUBLIC DEFICIT PUBLIC SPENDING REAL GDP REAL INTEREST REAL INTEREST RATE RECESSIONS REGRESSION ANALYSIS REMEDIES RENEGOTIATION RENEGOTIATION PROCESS REPAYMENT REPUDIATION REPUTATION RESTRUCTURING OF DEBT RISK AVERSION RISK NEUTRAL RISK OF DEFAULT RISK PREMIUM RULE OF LAW SINGLE DEBT SOCIAL SECURITY SOFT BUDGET CONSTRAINTS SOURCE OF INCOME SOVEREIGN BONDS SOVEREIGN DEBT SOVEREIGN DEFAULT SOVEREIGN DEFAULTS STATE ARREARS STATE DEBT STATE DEBTS SYSTEMIC BANKING CRISES TAX TAX BURDEN TAX REVENUE TAX REVENUES TOTAL DEBT TREASURY UNDERESTIMATES UTILITY FUNCTION VOLATILITIES VOLATILITY VOTERS WORLD DEVELOPMENT INDICATOR |
| spellingShingle |
ACCESS TO CREDIT ADVANCED ECONOMIES AGGREGATE COST AGGREGATE DEBT AMOUNT OF DEBT ARREARS ASSETS AVERAGE DEBT BAILOUTS BANK POLICY BANKING CRISES BARGAINING POWER BARGAINING POWERS BOND BOND PRICE BOND PRICES BORROWER BORROWING COUNTRY BUDGET CONSTRAINT BUDGET CONSTRAINTS BUREAUCRATIC QUALITY BUSINESS CYCLE CAPITAL FLOWS CAPITAL MARKET CASE OF DEFAULT CENTRAL BANK CENTRAL BANK INDEPENDENCE CLAIM CONSUMPTION SMOOTHING CORRUPTION COST STRUCTURE COUNTRY RISK CREDIBILITY CREDIT MARKET CREDITORS CURRENT ACCOUNT DEBT CONTRACTS DEBT CRISES DEBT CRISIS DEBT LEVEL DEBT OBLIGATIONS DEBT POLICIES DEBT POLICY DEBT REPAYMENT DEBTS DEFAULT COST DEFAULT COSTS DEFAULT LOSS DEFAULT PENALTY DEFAULT PROBABILITIES DEFAULT PROBABILITY DEFAULT RISK DEFAULTER DEFAULTERS DEFICITS DEMOCRACIES DEPENDENT DEVELOPING COUNTRIES DEVELOPMENT BANK DEVELOPMENT ECONOMICS DEVELOPMENT POLICY DISCOUNT BONDS DUMMY VARIABLE DURABLE ECONOMIC ACTIVITY ECONOMIC GROWTH ECONOMIC POLICY EMERGING ECONOMIES EMPLOYER EQUILIBRIUM ETHNIC GROUPS EVENT OF DEFAULT EXCLUSION EXPENDITURE EXPENDITURES EXPROPRIATION EXPROPRIATION RISK EXTERNAL BORROWING EXTERNAL DEBT EXTERNAL SHOCKS FEDERAL RESERVE FEDERAL RESERVE BANK FINANCIAL AFFAIRS FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL RELATIONSHIP FINANCING COST FINANCING COSTS FISCAL DECENTRALIZATION FISCAL DEFICIT FISCAL DEFICITS FISCAL DISCIPLINE FISCAL POLICIES FISCAL POLICY FISCAL REFORMS FOREIGN INVESTORS FOREIGN LENDERS FULL REPAYMENT FUNCTIONAL FORMS GDP PER CAPITA GINI COEFFICIENT GLOBAL DEVELOPMENT FINANCE GOVERNANCE INDICATORS GOVERNMENT DEBT GOVERNMENT DEFAULT GOVERNMENT EXPENDITURE GOVERNMENT POLICIES GOVERNMENT SPENDING HARD BUDGET HIGH DEBT INCOME INCOME INEQUALITY INCOME LEVEL INCOMES INDUSTRIALIZATION INEFFICIENCY INFLATION INSTITUTIONAL ARRANGEMENTS INSTITUTIONAL BARRIERS INSTITUTIONAL CONSTRAINTS INSTITUTIONAL ENVIRONMENT INTEREST PAYMENT INTEREST RATES INTERGOVERNMENTAL TRANSFERS INTERNATIONAL BANK INTERNATIONAL CAPITAL INTERNATIONAL CAPITAL MARKET INTERNATIONAL CAPITAL MARKETS INTERNATIONAL CREDIT INTERNATIONAL DEVELOPMENT INTERNATIONAL ECONOMICS INTERNATIONAL INVESTORS JURISDICTIONS LABOR UNIONS LEGAL FRAMEWORK LENDER LENDERS LEVEL OF DEBT LEVELS OF DEBT LEVY LIQUIDATION LOCAL GOVERNMENTS LOW-INCOME COUNTRIES MACROECONOMIC POLICIES MACROECONOMICS MARGINAL COST MARKET FOR BONDS MARKET MECHANISMS MONETARY POLICY NATIONAL INCOME NEGATIVE EXTERNALITIES NEGATIVE EXTERNALITY NEGOTIATIONS OPEN ECONOMY OPTIMIZATION ORIGINAL CONTRACT ORIGINAL OBLIGATION OUTPUT OUTPUT LOSS PARTICULAR COUNTRY POLITICAL ECONOMY POLITICAL REGIME POLITICAL SYSTEM PROBABILITY OF DEFAULT PROPERTY RIGHTS PUBLIC DEBT PUBLIC DEFICIT PUBLIC SPENDING REAL GDP REAL INTEREST REAL INTEREST RATE RECESSIONS REGRESSION ANALYSIS REMEDIES RENEGOTIATION RENEGOTIATION PROCESS REPAYMENT REPUDIATION REPUTATION RESTRUCTURING OF DEBT RISK AVERSION RISK NEUTRAL RISK OF DEFAULT RISK PREMIUM RULE OF LAW SINGLE DEBT SOCIAL SECURITY SOFT BUDGET CONSTRAINTS SOURCE OF INCOME SOVEREIGN BONDS SOVEREIGN DEBT SOVEREIGN DEFAULT SOVEREIGN DEFAULTS STATE ARREARS STATE DEBT STATE DEBTS SYSTEMIC BANKING CRISES TAX TAX BURDEN TAX REVENUE TAX REVENUES TOTAL DEBT TREASURY UNDERESTIMATES UTILITY FUNCTION VOLATILITIES VOLATILITY VOTERS WORLD DEVELOPMENT INDICATOR Qian, Rong Why Do Some Countries Default More Often Than Others? The Role of Institutions |
| geographic_facet |
The World Region The World Region |
| relation |
Policy Research working paper ; no. WPS 5993 |
| description |
This paper examines how a country's
weak institutions and polarized government can affect the
likelihood of its default on sovereign debt. Using a data
set of 90 countries, it shows that strong institutions are
associated with fewer sovereign default crises. In addition,
when institutions are weak, a more polarized government
tends to default more often. To explain these findings, the
author develops a model showing the dynamics between the
quality of institutions, the level of government
polarization and sovereign default risk. Countries default
more often when they lack rules and strong institutions to
curb the influence of powerful groups on government
policies. That is because in a polarized government, each
powerful group makes decisions without considering the
impact on other groups. Simulations of the model show that
more than half the cross-country variation in sovereign
default frequencies can be explained by institutional
quality and the degree of government polarization observed
in the data. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Qian, Rong |
| author_facet |
Qian, Rong |
| author_sort |
Qian, Rong |
| title |
Why Do Some Countries Default More Often Than Others? The Role of Institutions |
| title_short |
Why Do Some Countries Default More Often Than Others? The Role of Institutions |
| title_full |
Why Do Some Countries Default More Often Than Others? The Role of Institutions |
| title_fullStr |
Why Do Some Countries Default More Often Than Others? The Role of Institutions |
| title_full_unstemmed |
Why Do Some Countries Default More Often Than Others? The Role of Institutions |
| title_sort |
why do some countries default more often than others? the role of institutions |
| publishDate |
2012 |
| url |
http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20120312132447 http://hdl.handle.net/10986/3282 |
| _version_ |
1764386727114309632 |
| spelling |
okr-10986-32822021-04-23T14:02:08Z Why Do Some Countries Default More Often Than Others? The Role of Institutions Qian, Rong ACCESS TO CREDIT ADVANCED ECONOMIES AGGREGATE COST AGGREGATE DEBT AMOUNT OF DEBT ARREARS ASSETS AVERAGE DEBT BAILOUTS BANK POLICY BANKING CRISES BARGAINING POWER BARGAINING POWERS BOND BOND PRICE BOND PRICES BORROWER BORROWING COUNTRY BUDGET CONSTRAINT BUDGET CONSTRAINTS BUREAUCRATIC QUALITY BUSINESS CYCLE CAPITAL FLOWS CAPITAL MARKET CASE OF DEFAULT CENTRAL BANK CENTRAL BANK INDEPENDENCE CLAIM CONSUMPTION SMOOTHING CORRUPTION COST STRUCTURE COUNTRY RISK CREDIBILITY CREDIT MARKET CREDITORS CURRENT ACCOUNT DEBT CONTRACTS DEBT CRISES DEBT CRISIS DEBT LEVEL DEBT OBLIGATIONS DEBT POLICIES DEBT POLICY DEBT REPAYMENT DEBTS DEFAULT COST DEFAULT COSTS DEFAULT LOSS DEFAULT PENALTY DEFAULT PROBABILITIES DEFAULT PROBABILITY DEFAULT RISK DEFAULTER DEFAULTERS DEFICITS DEMOCRACIES DEPENDENT DEVELOPING COUNTRIES DEVELOPMENT BANK DEVELOPMENT ECONOMICS DEVELOPMENT POLICY DISCOUNT BONDS DUMMY VARIABLE DURABLE ECONOMIC ACTIVITY ECONOMIC GROWTH ECONOMIC POLICY EMERGING ECONOMIES EMPLOYER EQUILIBRIUM ETHNIC GROUPS EVENT OF DEFAULT EXCLUSION EXPENDITURE EXPENDITURES EXPROPRIATION EXPROPRIATION RISK EXTERNAL BORROWING EXTERNAL DEBT EXTERNAL SHOCKS FEDERAL RESERVE FEDERAL RESERVE BANK FINANCIAL AFFAIRS FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL RELATIONSHIP FINANCING COST FINANCING COSTS FISCAL DECENTRALIZATION FISCAL DEFICIT FISCAL DEFICITS FISCAL DISCIPLINE FISCAL POLICIES FISCAL POLICY FISCAL REFORMS FOREIGN INVESTORS FOREIGN LENDERS FULL REPAYMENT FUNCTIONAL FORMS GDP PER CAPITA GINI COEFFICIENT GLOBAL DEVELOPMENT FINANCE GOVERNANCE INDICATORS GOVERNMENT DEBT GOVERNMENT DEFAULT GOVERNMENT EXPENDITURE GOVERNMENT POLICIES GOVERNMENT SPENDING HARD BUDGET HIGH DEBT INCOME INCOME INEQUALITY INCOME LEVEL INCOMES INDUSTRIALIZATION INEFFICIENCY INFLATION INSTITUTIONAL ARRANGEMENTS INSTITUTIONAL BARRIERS INSTITUTIONAL CONSTRAINTS INSTITUTIONAL ENVIRONMENT INTEREST PAYMENT INTEREST RATES INTERGOVERNMENTAL TRANSFERS INTERNATIONAL BANK INTERNATIONAL CAPITAL INTERNATIONAL CAPITAL MARKET INTERNATIONAL CAPITAL MARKETS INTERNATIONAL CREDIT INTERNATIONAL DEVELOPMENT INTERNATIONAL ECONOMICS INTERNATIONAL INVESTORS JURISDICTIONS LABOR UNIONS LEGAL FRAMEWORK LENDER LENDERS LEVEL OF DEBT LEVELS OF DEBT LEVY LIQUIDATION LOCAL GOVERNMENTS LOW-INCOME COUNTRIES MACROECONOMIC POLICIES MACROECONOMICS MARGINAL COST MARKET FOR BONDS MARKET MECHANISMS MONETARY POLICY NATIONAL INCOME NEGATIVE EXTERNALITIES NEGATIVE EXTERNALITY NEGOTIATIONS OPEN ECONOMY OPTIMIZATION ORIGINAL CONTRACT ORIGINAL OBLIGATION OUTPUT OUTPUT LOSS PARTICULAR COUNTRY POLITICAL ECONOMY POLITICAL REGIME POLITICAL SYSTEM PROBABILITY OF DEFAULT PROPERTY RIGHTS PUBLIC DEBT PUBLIC DEFICIT PUBLIC SPENDING REAL GDP REAL INTEREST REAL INTEREST RATE RECESSIONS REGRESSION ANALYSIS REMEDIES RENEGOTIATION RENEGOTIATION PROCESS REPAYMENT REPUDIATION REPUTATION RESTRUCTURING OF DEBT RISK AVERSION RISK NEUTRAL RISK OF DEFAULT RISK PREMIUM RULE OF LAW SINGLE DEBT SOCIAL SECURITY SOFT BUDGET CONSTRAINTS SOURCE OF INCOME SOVEREIGN BONDS SOVEREIGN DEBT SOVEREIGN DEFAULT SOVEREIGN DEFAULTS STATE ARREARS STATE DEBT STATE DEBTS SYSTEMIC BANKING CRISES TAX TAX BURDEN TAX REVENUE TAX REVENUES TOTAL DEBT TREASURY UNDERESTIMATES UTILITY FUNCTION VOLATILITIES VOLATILITY VOTERS WORLD DEVELOPMENT INDICATOR This paper examines how a country's weak institutions and polarized government can affect the likelihood of its default on sovereign debt. Using a data set of 90 countries, it shows that strong institutions are associated with fewer sovereign default crises. In addition, when institutions are weak, a more polarized government tends to default more often. To explain these findings, the author develops a model showing the dynamics between the quality of institutions, the level of government polarization and sovereign default risk. Countries default more often when they lack rules and strong institutions to curb the influence of powerful groups on government policies. That is because in a polarized government, each powerful group makes decisions without considering the impact on other groups. Simulations of the model show that more than half the cross-country variation in sovereign default frequencies can be explained by institutional quality and the degree of government polarization observed in the data. 2012-03-19T17:29:40Z 2012-03-19T17:29:40Z 2012-03-01 http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20120312132447 http://hdl.handle.net/10986/3282 English Policy Research working paper ; no. WPS 5993 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank Publications & Research :: Policy Research Working Paper The World Region The World Region |