The Debt Crisis: Structural Explanations of Country Performance; Comments

A cross-country statistical model of debt rescheduling is developed, along with the secondary market valuation of less developed country debt, which links these variables to key structural characteristics of developing countries, such as the degree of income inequality, the trade regime, and the share of agriculture in gross national product. The most striking finding is that higher income inequality is a significant predictor of a higher probability of debt rescheduling in a cross-section of middle-income economies with extreme inequality. It also is found that outward-orientation of the trade regime is a significant predictor of a reduced probability of debt rescheduling. In a comment, Selowsky agrees with the instincts of Berg and Sachs to look for the political economy forces as an important explanation, but finds the political story of the paper too mechanical and the variables too rough.