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...

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Main Authors:	Farah-Yacoub, Juan P., Graf von Luckner, Clemens, Ramalho, Rita, Reinhart, Carmen
Format:	Working Paper
Language:	English English
Published:	World Bank, Washington, DC 2022
Subjects:	SOVEREIGN DEFAULT SOVEREIGN DEBT DEBT CRISIS POVERTY ECONOMIC GROWTH SYNTHETIC CONTROL METHOD HUMAN IMPACT OF DEFAULT
Online Access:	http://documents.worldbank.org/curated/en/099247208312211235/IDU0bf68e15c0a49f042e208b0c07f4cf3bcdb9e http://hdl.handle.net/10986/37945

id	okr-10986-37945
recordtype	oai_dc
spelling	okr-10986-379452022-09-01T05:10:41Z The Social Costs of Sovereign Default Farah-Yacoub, Juan P. Graf von Luckner, Clemens Ramalho, Rita Reinhart, Carmen SOVEREIGN DEFAULT SOVEREIGN DEBT DEBT CRISIS POVERTY ECONOMIC GROWTH SYNTHETIC CONTROL METHOD HUMAN IMPACT OF 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 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. 2022-08-31T18:36:47Z 2022-08-31T18:36:47Z 2022-08 Working Paper http://documents.worldbank.org/curated/en/099247208312211235/IDU0bf68e15c0a49f042e208b0c07f4cf3bcdb9e http://hdl.handle.net/10986/37945 English en Policy Research Working Papers;10157 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Policy Research Working Paper Publications & Research
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English English
topic	SOVEREIGN DEFAULT SOVEREIGN DEBT DEBT CRISIS POVERTY ECONOMIC GROWTH SYNTHETIC CONTROL METHOD HUMAN IMPACT OF DEFAULT
spellingShingle	SOVEREIGN DEFAULT SOVEREIGN DEBT DEBT CRISIS POVERTY ECONOMIC GROWTH SYNTHETIC CONTROL METHOD HUMAN IMPACT OF DEFAULT Farah-Yacoub, Juan P. Graf von Luckner, Clemens Ramalho, Rita Reinhart, Carmen The Social Costs of Sovereign Default
relation	Policy Research Working Papers;10157
description	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.
format	Working Paper
author	Farah-Yacoub, Juan P. Graf von Luckner, Clemens Ramalho, Rita Reinhart, Carmen
author_facet	Farah-Yacoub, Juan P. Graf von Luckner, Clemens Ramalho, Rita Reinhart, Carmen
author_sort	Farah-Yacoub, Juan P.
title	The Social Costs of Sovereign Default
title_short	The Social Costs of Sovereign Default
title_full	The Social Costs of Sovereign Default
title_fullStr	The Social Costs of Sovereign Default
title_full_unstemmed	The Social Costs of Sovereign Default
title_sort	social costs of sovereign default
publisher	World Bank, Washington, DC
publishDate	2022
url	http://documents.worldbank.org/curated/en/099247208312211235/IDU0bf68e15c0a49f042e208b0c07f4cf3bcdb9e http://hdl.handle.net/10986/37945
_version_	1764488179143933952

The Social Costs of Sovereign Default

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