Sovereign Risk and Natural Disasters in Emerging Markets

Jeroen Klomp*

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

3 Citations (Scopus)

Abstract

In this article, we explore the effect of large-scale natural disasters on sovereign default risk. We use a heterogeneous dynamic panel model including a set of more than 380 large-scale natural disasters for about forty emerging market countries in the period 1999-2010. After testing for the sensitivity of the results, our main findings suggest that natural disasters significantly increase the sovereign default premium paid by bond holders. That is, investors perceive natural disasters as an adverse shock that makes the government debt less sustainable and eventually triggers a sovereign default. In particular, it turns out that geophysical and meteorological disasters increase the credit default premium in both the long run as well as in the short run, while hydrological disasters have only a temporary effect. ©

Original languageEnglish
Pages (from-to)1326-1341
JournalEmerging Markets Finance and Trade
Volume51
Issue number6
DOIs
Publication statusPublished - 2015

Keywords

  • government default
  • natural disasters
  • pooled mean group

Fingerprint Dive into the research topics of 'Sovereign Risk and Natural Disasters in Emerging Markets'. Together they form a unique fingerprint.

  • Cite this