Analysis shows trade declines in sovereign debt crises with exports varying by default status, indicating economic implications.
Sovereign debt restructurings can have large impacts on trade, with a significant compression of imports and a more ambiguous effect on exports. We show that the magnitude of that impact depends on whether restructurings preempt a default or take place after payments have been missed, with the latter associated with longer and deeper crises. Import compression is significantly higher following post-default restructurings, which also tend to be associated with higher exports relative to preemptive restructurings. This is consistent with the need for a larger external adjustment following a default. We also show how the effect varies across types of goods, and a larger impact when initial aggregate domestic demand in the debtor’s economy is high.
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Asonuma et al. (2025) studied this question.
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