When Does Sovereign Borrowing Pay Off? The Case for Public Investment (Job Market Paper)

Gamboa-Arbelaez, Juliana. 2025. "When Does Sovereign Borrowing Pay Off? The Case for Public Investment"

Abstract:  Sovereign borrowing allows governments to finance public capital investment but exposes them and their citizens to default risk, creating an important trade-off for developing countries. Given this trade-off, I analyze the welfare consequences of external sovereign borrowing. Empirically, I document that public investment is positively correlated with private investment, while higher public debt is associated with lower private investment. Motivated by these patterns, I develop a sovereign default model in which the government can borrow externally, allocate resources to public investment, tax, and transfer households. The private sector makes investment decisions while internalizing government policy. The model is calibrated to match the empirical correlations and reproduce the observed response of investment to default. I find that the welfare effects of market access depend on initial capital stocks: economies with low public and private capital gain from borrowing, as high returns to public investment outweigh future default costs, whereas economies with high capital levels experience welfare losses. Finally, I evaluate fiscal rules and show that those encouraging public investment or limiting debt accumulation improve welfare. 

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Hidden Chinese Lending (R&R JIE)

Gamboa-Arbelaez, Juliana. 2023. "Hidden Chinese Lending"

Abstract: Recent evidence shows an increase in sovereign debt from China to emerging and low-income developing countries. Chinese lending contracts have stringent confidentiality clauses that restrict the borrowers from reporting these contracts. The use of these type of clauses hide the true fiscal and financial conditions of a country. This paper develops a sovereign default model with asymmetric information, where governments can borrow from both private lenders and China. I analyze the debt sustainability and welfare implications of hidden Chinese debt. The findings show that governments with Chinese debt face welfare losses from increased transparency due to worsened borrowing terms from private lenders. In contrast, governments without Chinese debt experience welfare gains from transparency.

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On the Changing Relationship between Net Public Foreign Assets and Growth

Gamboa-Arbelaez, Juliana and Jacob Wright. 2023. "On the Changing Relationship between Net Public Foreign Assets and Growth" Replication Package

Abstract: This paper documents novel stylized facts and illustrates a simple mechanism explaining patterns of net public foreign assets across countries and time. Previous literature found an unexpected negative correlation between growth and net public foreign assets from 1980 to the mid-2000s. Analyzing data up to 2019 we find that this result no longer holds. We document a significant reversal since 2004, with the correlation now zero or weakly positive. Empirically, we attribute this shift to a substantial substitution from public debt towards international reserves, particularly for slower-growing countries. Simultaneously, low-growth countries experienced heightened productivity volatility. Augmenting an open economy neoclassical growth model to include uncertainty, we demonstrate that this increased risk faced by low-growth economies can explain these changing correlations.

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Imputing Race

Albright, Alex and Juliana Gamboa-Arbelaez. 2024. "Imputing Race"

Abstract: Missing data on racial identity is a fundamental challenge to studying race in the economy. When race is unobserved, researchers often impute it from variables such as names and locations. Although many imputation methods exist, systematic comparisons of their performance are rare. This paper offers one of the first such comparisons, evaluating leading methods across multiple dimensions. No single method dominates – the best choice depends on the object of interest. These findings highlight the limitations of a common empirical practice: choosing methods based on a single performance dimension.

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The Cost of Waiting (draft coming soon)

Juliana Gamboa-Arbelaez, Marialuz Moreno-Badia and Andrea Presbitero. 2025. "The Cost of Waiting"

Abstract: Rising public debt has increased the risk of fiscal distress in emerging markets and developing economies. Although large-scale debt crises have been avoided, prolonged fiscal distress can still impose substantial economic and social costs. We quantify the cost of delayed resolution, moving beyond output losses to direct measures of social and development impact. Protracted crises are associated with sharp, sustained cuts in government spending over the five years following onset, particularly in education, healthcare, and social protection. Back-of-the-envelope estimates suggest that such crises could leave 33.7 million children out of school and 85.8 million people without access to basic healthcare. Consistent with reduced social spending, we also find declines in calorie intake and rising poverty rates. These outcomes reflect weaker growth, rising debt, and higher debt service costs, which increasingly crowd out essential social spending.

Fiscal Adjustments and the Asymmetric Effect of Oil Shocks 

Valencia Arana, Oscar, Juliana Gamboa-Arbelaez and Gustavo Sanchez. (2025). "Fiscal Adjustments and the Asymmetric Effect of Oil Shocks".  Energy Economics, 144.

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Debt Erosion: Asymmetric Response of Demand and Supply Shocks 

Valencia Arana, Oscar, Juliana Gamboa-Arbelaez and Gustavo Sanchez. (2024). "Debt Erosion: Asymmetric Response of Demand and Supply Shocks".  International Review of Economics and Finance, 96.

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The Fiscal Multiplier of Public Investment: The Role of Corporate Balance Sheet

Espinoza, Rafael, Juliana Gamboa-Arbelaez and Mouhammadou Sy. (2024). "The Fiscal Multiplier of Public Investment: The Role of Corporate Balance Sheet ". The B.E. Journal of Macroeconomics, 24(1): 489-527.

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Debt Dynamics in Emerging and Developing Economies: Is R-G a Red Herring?

Moreno-Badia, Marialuz, Juliana Gamboa-Arbelaez, and Yuan Xiang. (2022). "Debt Dynamics in Emerging and Developing Economies: Is R-G a Red Herring?" Journal of Globalization and Development, 13(2): 269–304.

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Effects of Interest Rate Caps on Credit Access

Cubillos-Rocha, Juan Sebastian, Juliana Gamboa-Arbelaez, Luis Fernando Melo-Velandia, Sara Restrepo-Tamayo, Maria Jose Roa-Garcia, and Mauricio Villamizar-Villegas. (2021). "Effects of Interest Rate Caps on Credit Access" Journal of Regulatory Economics, 60: 117–139.

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Inclusive Health and Life Insurance Adoption: An Empirical Study in Guatemala

Roa-Garcia, Maria Jose, Sonia Di Giannatale, Jonathan Barboza, and Juliana Gamboa-Arbelaez. (2021). "Inclusive Health and Life Insurance Adoption: An Empirical Study in Guatemala" Review of Development Economics, 25(2): 1053-1077.

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Dynamic Relations between Oil and Stock Market Returns: A Multi-country Study

Gomez-Gonzalez, Jose Eduardo, Jorge Hirs-Garzon, and Juliana Gamboa-Arbelaez. (2020). "Dynamic relations between oil and stock market returns: A multi-country study". The North American Journal of Economics and Finance, 51.

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When Bubble Meets Bubble: Contagion in OECD Countries

Gomez-Gonzalez, Jose Eduardo, Juliana Gamboa-Arbelaez, Jorge Hirs-Garzon, and Andres Pinchao-Rosero. (2018). "When Bubble Meets Bubble: Contagion in OECD Countries". The Journal of Real Estate Finance and Economics, 56: 546–566.