Flooded with debt

Jeroen Klomp*

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

24 Citations (Scopus)

Abstract

This study explores if natural disasters are able to trigger a sovereign debt default. Natural disasters make the debt of a country less sustainable as they worsen the public finances of a country. The main findings from our empirical analysis clearly indicate that large-scale natural disasters increase significantly the onset probability of a sovereign debt default by about three percentage-points. It turns out that particularly major earthquakes and storms raise the likelihood of a default as they create the most widespread damage reported worldwide. This will limit the debt servicing opportunities of a country in the future.

Original languageEnglish
Pages (from-to)93-103
JournalJournal of International Money and Finance
Volume73
Issue numberPart A
DOIs
Publication statusPublished - 1 May 2017

Keywords

  • Government debt
  • Natural disasters
  • Sovereign default

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