Sovereign Defaults, Fiscal Cyclicality, and Economic Growth Open Access
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This dissertation examines sovereign defaults, fiscal cyclicality, and economic growth during the first wave of financial globalization. The first chapter studies the causes and the renegotiations of 27 sovereign defaults episodes of seven Latin American countries from 1820-1931. Most of these defaults are clustered together and occur when the financial center is in economic distress. However, some defaults occur in the midst of abundant international liquidity and are caused by solvency and liquidity idiosyncratic problems. Lower international liquidity and solvency problems cause longer default spells and lower recovery rates. Future research will address the connections between sovereign defaults with currency crises as well as the different patterns of contagion of the crises originated in the financial center.The second chapter examines the fiscal cyclicality of three commodity dependent economies -Argentina, Australia and Canada- from 1865 to 1938 and its impact on growth. Fiscal indicators were more volatile in Argentina than in Australia and Canada, especially during the 19th century. Overall, fiscal policy was procyclical in Argentina, whereas it was acyclical in Australia and Canada. This chapter presents evidence that Argentina's fiscal procyclicality occurred during periods of adherence to the gold standard and during bonanza episodes. My estimations suggest that fiscal volatility did not affect the growth of these three countries during the period 1865-1938. However, Argentina's procyclical fiscal stance had a negative impact on its growth although this effect was small. Therefore, it is necessary to investigate other possible sources, such as access to international markets, adoption of new technologies, or education.The third chapter re-evaluates the economic growth of Argentina for the period 1875-1938 focusing on the role of technology and education. I perform this analysis comparing Argentina's indicators relative to other two settler economies, Australia and Canada. In the 1870's, Argentina exhibited lower levels of GDP per capita, technology, and education compared to those for Australia and Canada. Capital inflows and education reduced Argentina's technology gap with respect to Australia and Canada. Argentina's technology convergence with Australia also explains the reduction of their GDP per capita gap. I present evidence that Argentina converged in education, technology, and GDP per capita with respect to Australia and Canada during the period 1875 to 1938. These results suggest that Argentina started to slow down relative to other similar economies after WWII. Despite this convergence, Argentina was not able to reach the same levels of education and technology as in Australia and Canada, suggesting that Argentina exhibited earlier signals of underdevelopment. My results also present evidence that the stronger commercial ties of Australia and Canada with the U.K. are positively associated with their GDP gap with Argentina. Further research would focus on the impact of technology and education on the different economic sectors to examine the industrialization process in these economies.