• Coping with Disasters: Two Centuries of International Official Lending, with Carmen M. Reinhart and Christoph Trebesch

NBER Working Paper 27343; summary at VoxEU; press coverage in FT, LeMonde, Sueddeutsche

Official (government-to-government) lending is much larger than commonly known, often surpassing total private cross-border capital flows, especially during disasters such as wars, financial crises and natural catastrophes. We assemble the first comprehensive long-run dataset of official international lending, covering 230,000 loans, grants and guarantees extended by governments, central banks, and multilateral institutions in the period 1790-2015. Historically, wars have been the main catalyst of government-to-government transfers. The scale of official credits granted in and around WW1 and WW2 was particularly large, easily surpassing the scale of total international bailout lending after the 2008 crash. During peacetime, development finance and financial crises are the main drivers of official cross-border finance, with official flows often stepping in when private flows retrench. In line with the predictions of recent theoretical contributions, we find that official lending increases with the degree of economic integration. In crises and disasters, governments help those countries to which they have greater trade and banking exposure, hoping to reduce the collateral damage to their own economies. Since the 2000s, official finance has made a sharp comeback, largely due to the rise of China as an international creditor and the return of central bank cross-border lending in times of stress, this time in the form of swap lines. 

• China as an International Lender of Last Resort, with Brad Parks, Carmen M. Reinhart and Christoph Trebesch

NBER Working Paper 31105; data available here. Selected media coverage: NYT, FT (and Alphaville), WSJ (also see here), Bloomberg, CNN, Economist

This paper shows that China has launched a new global system for cross-border rescue lending to countries in debt distress. It builds the first comprehensive dataset on China’s overseas bailouts between 2000 and 2021 and provide new insights into China’s growing role in the global financial system. A key finding is that the global swap line network put in place by the People’s Bank of China is increasingly used as a financial rescue mechanism, with more than USD 170 billion in liquidity support extended to crisis countries, including repeated rollovers of swaps coming due. The swaps bolster gross reserves and are mostly drawn by distressed countries with low liquidity ratios. In addition, we show that Chinese state-owned banks and enterprises have given out an additional USD 70 billion in rescue loans for balance of payments support. Taken together, China’s overseas bailouts correspond to more than 20 percent of total IMF lending over the past decade and bailout amounts are growing fast. However, China’s rescue loans differ from those of established international lenders of last resort in that they (i) are opaque, (ii) carry relatively high interest rates, and (iii) are almost exclusively targeted to debtors of China's Belt and Road Initiative. These findings have implications for the international financial and monetary architecture, which is becoming more multipolar, less institutionalized, and less transparent. 

• Opening Up: Capital Flows and Financial Sector Dynamics in Low-Income Developing Countries, with Futoshi Narita

IMF Working Paper No. 2021/237 

Over the past two decades, many low-income developing countries have substantially increased openness towards external financing and have received large capital inflows. Using bank-level micro data, this paper finds that capital inflows have been associated with financial deepening through increases in bank loans, deposits, and wholesale funding. Domestic banks increase loans more than foreign banks. There are only modest signs of a build-up in financial vulnerabilities. Causality is examined through an instrumental variable approach and an augmented inverse-probability weighting estimator. These approaches indicate only limited evidence for global push effects, pointing towards the importance of domestic pull factors. 

Work in progress:

Hidden Debt Revelations, with David Mihalyi, Philipp Nickol and César Sosa-Padilla, (see this blog for some early results)

An empirical model for debt distress in developing countries, with Clemens Graf von Luckner, Aart Kraay and Rita Ramalho

Official capital flows and international risk sharing, with Giovanni Rosso

Creditor Dispersion and Coordination in Sovereign Debt Markets, with Clemens Graf von Luckner

Published papers:

How China Lends: A Rare Look Into 100 Debt Contracts with Foreign Governments, with Anna Gelpern, Scott Morris, Bradley Parks and Christoph Trebesch

Economic Policy; data and Chinese lending contracts are available in a public repository here. 

Selected media coverage: The Economist, Bloomberg, Financial Times (also here, here and here), Washington Post, Devex, Reuters, Sueddeutsche, Spiegel

Debt Distress on China's Belt and Road, with Brad Parks, Carmen M. Reinhart and Christoph Trebesch

Data and replication package available here, published in the AEA Papers & Proceedings, 

Hidden Defaults, with Carmen M. Reinhart and Christoph Trebesch

World Bank Policy Research Working Paper 9925, a short version was published in the AEA Papers & Proceedings.

Data and replication file; selected media coverage: The Economist (see also here and here), Handelsblatt, Welt, FAZ, Spiegel, WSJ

China's Overseas Lending, with Carmen M. Reinhart and Christoph Trebesch

Journal of International Economics, data and replication available here. Earlier version: NBER WP 26050.

Summaries available at VoxEU, Harvard Business Review and at CGD (response to critics); selected media coverage: The Economist, Wall Street Journal, New York Times, CNBC, NZZ, FAZ, Der Spiegel