The Cyclicality of International Public Sector Borrowing in Developing Countries: Does the Lender Matter?

39 Pages Posted: 29 Aug 2017

See all articles by Arturo José Galindo

Arturo José Galindo

Inter-American Development Bank

Ugo Panizza

Graduate Institute of International and Development Studies (IHEID) - Department of Economics; CEPR

Date Written: August 2017

Abstract

This paper shows that international government borrowing from multilateral development banks is countercyclical while international government borrowing form private sector lenders is procyclical. The countercyclicality of official lending is mostly driven by the behavior of the World Bank (borrowing from regional development banks tends to be acyclical). The paper also shows that official sector lending to Latin America and East Asia is more countercyclical than official lending to other regions. Private sector lending is instead procyclical in all developing regions. While the cyclicality of official lending does not depend on domestic or international conditions, private lending becomes particularly procyclical in periods of limited global capital flows. By focusing on both borrowers and lenders' heterogeneity the paper shows that the cyclical properties of international government debt are mostly driven by credit supply shocks. Demand factors appear to be less important drivers of procyclical international government borrowing. The paper's focus on supply and demand factors is different from the traditional push and pull classification, as push and pull factors could affect both the demand and the supply of international government debt.

Keywords: Fiscal Policy; International Financial Institutions, International Government Debt; Capital Flows

JEL Classification: E62, F32, F34

Suggested Citation

Galindo, Arturo José and Panizza, Ugo, The Cyclicality of International Public Sector Borrowing in Developing Countries: Does the Lender Matter? (August 2017). CEPR Discussion Paper No. DP12243, Available at SSRN: https://ssrn.com/abstract=3028609

Arturo José Galindo (Contact Author)

Inter-American Development Bank ( email )

1300 New York Avenue NW
Washington, DC 20577
United States

Ugo Panizza

Graduate Institute of International and Development Studies (IHEID) - Department of Economics ( email )

Geneva Avenue de la Paix 11A
Geneva, 1202
Switzerland

CEPR

London
United Kingdom

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