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Federal Reserve Bank of San Francisco
Working Papers in Applied Economic Theory
A gravity model of sovereign lending: trade, default and credit
Andrew K. Rose
Mark M. Spiegel
One reason why countries service their external debts is the fear that default might lead to shrinkage of international trade. If so, then creditors should systematically lend more to countries with which they share closer trade links. We develop a simple theoretical model to capture this intuition, then test and corroborate this idea.

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Bibliographic information
Andrew K. Rose & Mark M. Spiegel, A gravity model of sovereign lending: trade, default and credit, Working Papers in Applied Economic Theory 2002-09, Federal Reserve Bank of San Francisco, 2002.
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Keywords: International trade ; Credit ; Risk
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