The Interplay Between Public and Private External Debt Stocks

Abstract

Using a sample of 48 emerging and developing countries in the 1970–2012 period, we investigated the interactions between the stock of sovereign debt and the quantity of corporate external borrowing. We found that public external debt hinders private‐sector access to external loan and bond markets. By contrast, the stock of private debt in international financial markets exerts a positive influence on public external debt from all sources except other private creditors. We also found the incidence of bank crises, capital account openness and the rate of economic growth to be among the macroeconomic variables that have a significant impact on both public and private external debts.

Sovereign External Debt and Private Sector Entry in International Financial Markets

“…Higher external public debt can thus crowd-out private borrowings if diversifying investors do not wish to allocate a greater part of their financial wealth to a country's liabilities. The substitutability of various types of public external debt for private external debt is discussed in Brzozowski and Siwińska-Gorzelak (2016). Moreover a high level of public external debt raises concerns of sovereign default and can be an obstacle to private sector entry in the international financial market given the costs of default.…”