The Social Costs of Sovereign Default
This paper estimates the costs of sovereign defaults to a broader extent than has been done in the literature. Applying the synthetic control method to a sample of 131 defaults since 1900, it finds that, on average, growth in the first two years fa...
| Main Authors: | , , , |
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| Format: | Working Paper |
| Language: | English English |
| Published: |
World Bank, Washington, DC
2022
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/099247208312211235/IDU0bf68e15c0a49f042e208b0c07f4cf3bcdb9e http://hdl.handle.net/10986/37945 |
| Summary: | This paper estimates the costs of
sovereign defaults to a broader extent than has been done in
the literature. Applying the synthetic control method to a
sample of 131 defaults since 1900, it finds that, on
average, growth in the first two years falls 3.6 and 2.4
percentage points short of the counterfactual. Still, after
a decade, defaulters’ economic output per capita is nearly
17 percent below that of the counterfactual. Poverty
headcounts—available since the 1980s—exceed their pre-crisis
levels by roughly 30 percent shortly after default and
remain elevated a decade later. Variables proxying access to
nutrition, energy, and health outcomes—available since the
1960s—suggest that standards of living decline sharply after
sovereign defaults. For instance, on average, by year 10
after default, defaulters have 13 percent more infant deaths
every year than the synthetic control. And surviving infants
are expected to have shorter lives: life expectancy drops to
1.5 percent below the counterfactual. |
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