1. 1 The Pain and the Mystery of Original Sin Barry Eichengreen Ricardo Hausmann Ugo Panizza

2. 2 Outline and Summary Definition and Facts Definition and Facts Most countries do not borrow abroad in their own currencies, a problem we refer to as “original sin” Most countries do not borrow abroad in their own currencies, a problem we refer to as “original sin” If a country has a net foreign debt, this creates an aggregate currency mismatch If a country has a net foreign debt, this creates an aggregate currency mismatch Of course a country can decide not to have a mismatch by not borrowing or holding a lot of reserves Of course a country can decide not to have a mismatch by not borrowing or holding a lot of reserves Pain Pain We show that original sin is associated with limited XR flexibility, high volatility, low credit ratings We show that original sin is associated with limited XR flexibility, high volatility, low credit ratings Mystery Mystery We show that standard explanations based on poor policies or institutions do not do a good job at explaining original sin We show that standard explanations based on poor policies or institutions do not do a good job at explaining original sin

3. 3 Work on Original Sin First papers on the topic: First papers on the topic: Eichengreen and Hausmann (1999) Eichengreen and Hausmann (1999) Hausmann, Panizza, and Stein (2001) Hausmann, Panizza, and Stein (2001) Hausmann and Panizza (2003) Hausmann and Panizza (2003) Original Sin book: Original Sin book: Cespedes, Chang and Velasco, Corsetti and Mackowiak, Jeanne, Jeanne and Zettelmeyer, Flandreau and Sussman, Bordo, Meissner and Redish, Chamon and Hausmann Cespedes, Chang and Velasco, Corsetti and Mackowiak, Jeanne, Jeanne and Zettelmeyer, Flandreau and Sussman, Bordo, Meissner and Redish, Chamon and Hausmann Critics: Critics: Goldstein and Turner (2003) Goldstein and Turner (2003) Burger and Warnock (2003) Burger and Warnock (2003) Reinhart, Rogoff, and Savastano (2003) Reinhart, Rogoff, and Savastano (2003) Eichengreen, Hausmann, and Panizza (2003) Eichengreen, Hausmann, and Panizza (2003)

4. 4 Definition Eichengreen and Hausmann (1999) definition: “a situation in which the domestic currency is not used to borrow abroad or to borrow long term even domestically” Eichengreen and Hausmann (1999) definition: “a situation in which the domestic currency is not used to borrow abroad or to borrow long term even domestically” Here we mostly focus on “international original sin” Here we mostly focus on “international original sin” Better data on international original sin Better data on international original sin Domestic original sin seems easier to solve and some countries are doing progress in this direction Domestic original sin seems easier to solve and some countries are doing progress in this direction However, we also try to say something on “domestic original sin” However, we also try to say something on “domestic original sin”

5. 5 A first look at the problem: Distribution of international debt by issuers and currencies (1999-2001) 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1 USAEurolandJapanUKSwitzerlandCanadaAustralia Debt by country Debt by currency $4.5 trillion $5.6 trillion

6. 6 Is this because countries do their local currency funding on the home market and foreign currency funding abroad? 0 10 20 30 40 50 60 70 80 90 100 USAEUROJAPANCANADAUK Debt by currency Debt by country $473 billion $632 billion

7. 7 Measurement Measuring original sin is not straightforward Measuring original sin is not straightforward In principle, we want to measure external liabilities in own currency as a share of total external liabilities In principle, we want to measure external liabilities in own currency as a share of total external liabilities We use data gathered by the BIS on the currency denomination of bonds and money market instruments We use data gathered by the BIS on the currency denomination of bonds and money market instruments We also consider BIS data on cross-border bank lending, although the data are less complete (both in country coverage and currency breakdown) We also consider BIS data on cross-border bank lending, although the data are less complete (both in country coverage and currency breakdown)

8. 8 Main index used in the paper          0, countryby issued Securities currencyin Securities 1max3 i i OSIN i It captures opportunities for hedging through swaps It recognizes that you cannot hedge more than 100 percent of your debt

9. 9 Alternative indexes i i i OSIN1 countryby issued securities countryby issued currencyin securities 1  OSIN2 Uses bank loans OSIN3b Like OSIN3 but can take negative values

10. 10 Measures of original sin by country groupings 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1 Financial CentersEurolandOther Developed Developing OSIN1OSIN3

11. 11 Original Sin in Developing Countries

12. 12 Original sin is highly persistent: Original sin is highly persistent: OSIN and Flandreau-Sussman classification (circa 1850)

13. The Pain of Original Sin (The consequences)

14. 14 Exchange rate flexibility Exchange rate flexibility Output and capital flow volatility Output and capital flow volatility Credit ratings Credit ratings

15. 15 Original Sin and Exchange Rate Flexibility If an original sin country has a net foreign debt, then there is an aggregate currency mismatch. Movements in the RER will have an aggregated wealth effect If an original sin country has a net foreign debt, then there is an aggregate currency mismatch. Movements in the RER will have an aggregated wealth effect This renders the CB less willing to let the exchange rate move (fear of floating, Calvo and Reinhart, 2002) This renders the CB less willing to let the exchange rate move (fear of floating, Calvo and Reinhart, 2002) As a consequence, the CB holds more reserves and uses them, together with the interest rate, to intervene in the foreign exchange market (Hausmann, Panizza, Stein, 2001) As a consequence, the CB holds more reserves and uses them, together with the interest rate, to intervene in the foreign exchange market (Hausmann, Panizza, Stein, 2001)

16. 16 Original Sin and Exchange Rate Flexibility (1) (2) (3) (4) (5) (6) Dropping Financial Centers LYS RESM2 RVER LYS RESM2 RVER OSIN3 1.503 0.248 -0.801 1.112 0.339 -0.598 (3.56)*** (3.74)*** (2.02)** (2.45)** (3.10)*** (1.33) GDP_PC 0.302 -0.053 0.026 0.285 -0.052 0.025 (2.89)*** (1.85)* (0.61) (2.77)** * (1.81)* (0.56) OPEN 0.198 -0.014 1.017 0.153 -0.014 1.021 (0.92) (0.41) (2.88)*** (0.72) (0.41) (2.93)*** EXD/GDP 0.290 -0.036 -0.570 0.297 -0.030 -0.544 (0.96) (0.66) (2.36)** (0.98) (0.54) (2.29)** Constant -2.188 0.531 0.104 -1.644 0.435 -0.084 (1.94)* (1.73)* (0.17) (1.46) (1.35) (0.13) Observations 75 65 71 62 R-squared 0.37 0.62 0.34 0.65

17. 17 Original Sin and Exchange Rate Flexibility The results are generally robust to alternative definitions of original sin, to dropping weights, and to augmenting the regressions with a developing country dummy The results are generally robust to alternative definitions of original sin, to dropping weights, and to augmenting the regressions with a developing country dummy Causality is a big issue (Burnside, Eichenbaum, and Rebelo, 2001) Causality is a big issue (Burnside, Eichenbaum, and Rebelo, 2001) IV regressions confirm the results but instrument (SIZE) is lousy IV regressions confirm the results but instrument (SIZE) is lousy We tried to go in the other direction. OSIN on the left and LYS on the right instrumented with openness. We found no correlation between LYS and OSIN We tried to go in the other direction. OSIN on the left and LYS on the right instrumented with openness. We found no correlation between LYS and OSIN Using lagged OSIN in a panel confirms the results Using lagged OSIN in a panel confirms the results Devereux and Lane (2003) Devereux and Lane (2003)

18. 18 Original Sin, Output and Capital Flow Volatility Original sin limits the scope and effectiveness of counter-cyclical policies (Cespedes, Chang and Velasco, 2003) Original sin limits the scope and effectiveness of counter-cyclical policies (Cespedes, Chang and Velasco, 2003) Original Sin limits the CB ability of acting as a LOLR (Chang and Velasco, 2000) Original Sin limits the CB ability of acting as a LOLR (Chang and Velasco, 2000) Dollar liabilities are likely to increase the cost of a currency crisis Dollar liabilities are likely to increase the cost of a currency crisis Dollar liabilities could be associated with Sudden Stops in capital flows (Calvo, Izquierdo and Mejia, 2003) Dollar liabilities could be associated with Sudden Stops in capital flows (Calvo, Izquierdo and Mejia, 2003)

19. 19 Original Sin, Output and Capital Flow Volatility (1) (2) (3) (4) Dropping Financial Centers VOL_GROWTH VOL_FLOW VOL_GROWTH VOL_FLOW OSIN3 0.011 7.103 0.015 7.498 (1.96)* (3.58)*** (2.45)** (2.69)** LGDP_PC -0.012 -3.214 -0.012 -3.322 (2.14)** (2.56)** (2.09)** (2.40)** OPEN -0.001 -4.181 -0.000 -4.333 (0.12) (1.20) (0.08) (0.83) VOL_TOT -0.000 0.223 -0.000 0.223 (0.86) (1.08) (0.89) (1.02) SHARE2 -0.014 0.147 -0.015 0.949 (1.72)* (0.04) (1.51) (0.14) Constant 0.135 32.825 0.131 33.282 (2.25)** (2.39)** (2.15)** (2.22)** Observations 77 33 73 29 R-squared 0.40 0.64 0.40 0.62

20. 20 Original Sin and Credit Ratings If a country’s debt is denominated in foreign currency, its capacity to pay will not be related to its LCU GDP but to its dollar GDP If a country’s debt is denominated in foreign currency, its capacity to pay will not be related to its LCU GDP but to its dollar GDP Original Sin makes the real exchange rate matter for debt service Original Sin makes the real exchange rate matter for debt service This is important because in developing countries the volatility of dollar GDP is much higher than the volatility of LCU GDP, and sudden drops of dollar GDP are usually associated with much smaller drops in real GDP This is important because in developing countries the volatility of dollar GDP is much higher than the volatility of LCU GDP, and sudden drops of dollar GDP are usually associated with much smaller drops in real GDP Other things equal, countries with Original Sin should be riskier than countries that borrow in own currency Other things equal, countries with Original Sin should be riskier than countries that borrow in own currency

21. 21 Original Sin and Credit Ratings (1) (2) (3) (4) RATING Dropping Financial Centers OSIN3 -5.845 -5.644 -5.214 -4.955 (4.08)*** (4.01)*** (3.31)*** (3.21)*** DE_GDP -2.421 -2.285 (2.50)** (2.32)** DE_RE -0.999 -0.975 (2.49)** (2.39)** LGDP_PC 2.916 2.670 2.976 2.729 (8.48)*** (6.16)*** (8.36)*** (5.97)*** SHARE2 2.187 2.787 1.810 2.405 (1.43) (1.52) (1.09) (1.18) Constant -8.058 -5.962 -9.119 -7.037 (2.12)** (1.28) (2.29)** (1.44) Observations 56 49 53 46

22. The Mystery of Original Sin (the causes)

23. 23 Key Question from this Point of View Does the inability to borrow internationally in domestic currency reflect problems with country policies and institutions or systematic problems? Does the inability to borrow internationally in domestic currency reflect problems with country policies and institutions or systematic problems? We argue that the problem is too pervasive (and too weakly correlated with country characteristics) to be entirely explicable on the first set of grounds. We argue that the problem is too pervasive (and too weakly correlated with country characteristics) to be entirely explicable on the first set of grounds.

24. 24 Five possible explanations Underdevelopment of institutions and policies in general Underdevelopment of institutions and policies in general Inadequate monetary credibility Inadequate monetary credibility Fiscal profligacy Fiscal profligacy Weak contract enforcement Weak contract enforcement Political economy stories Political economy stories

25. 25 Original Sin and the Level of Development (1) (2) (3) OSIN3 LGDP_PC -0.141 -0.128 -0.170 (1.59) (1.43) (2.99)*** SIZE -0.310 - -0.415 (3.37)*** (3.33)*** (4.51)*** FIN_CENTER -0.680 (1.99)* EUROLAND -0.126 -0.152 (0.62) (0.74) OTH_DEVELOPED 0.007 -0.021 (0.03) (0.10) Constant 2.522 2.414 2.833 (3.39)*** (3.24)*** (5.46)*** Observations 75 71 75

26. 26 Original Sin and Monetary Credibility Lack of monetary credibility is the true cause of Original Sin (Jeanne, 2002) Lack of monetary credibility is the true cause of Original Sin (Jeanne, 2002) The government has an incentive to inflate away domestic currency debt held by foreigners, and the presence of foreign currency debt can act as commitment device and improve credibility (Tirole, 2002, Calvo and Guidotti, 1990) The government has an incentive to inflate away domestic currency debt held by foreigners, and the presence of foreign currency debt can act as commitment device and improve credibility (Tirole, 2002, Calvo and Guidotti, 1990) Why don’t we observe inflation indexed debt? (Chamon, 2002) Why don’t we observe inflation indexed debt? (Chamon, 2002)

27. 27 Original Sin and Monetary Credibility (1) (2) (3) (4) (5) (6) Dropping Financial Centers OSIN3 AV_INF 0.306 0.436 (1.19) (0.69) AV_INF2 -0.116 (0.23) MAX_INF 0.067 (0.95) INF 0.085 0.083 0.175 (1.09) (1.07) (2.08)** SIZE -0.318 - -0.316 -0.318 - -0.503 (3.57)*** (3.54)*** (3.52)*** (3.55)*** (3.50)*** (5.75)*** FIN_CENTER -0.866 -0.897 -0.857 -0.881 (2.88)*** (2.99)*** (2.83)*** (2.93)*** EUROLAND -0.304 -0.329 -0.296 -0.315 -0.318 (2.12)** (2.31)** (1.99)* (2.21)** OTH_DEVELOPED -0.199 -0.224 -0.192 -0.211 -0.213 (1.47) (1.67)* (1.37) (1.56) (1.57) Constant 1.277 1.310 1.259 1.346 1.347 1.358 (10.87)*** (11.60)*** (8.83)*** (13.56)*** (13.46)*** (13.41)*** Observations 74 70 74

28. 28 Original Sin and Monetary Credibility e( OSIN3 | X) e( AV_INF | X ) -.246179 1.48963 -.893699.363081 ROM PER RUS ARG NIC UKR

29. 29 Original Sin and Monetary Credibility Low inflation seems to be a necessary but not sufficient condition for escaping Original Sin Low inflation seems to be a necessary but not sufficient condition for escaping Original Sin Results are robust to longer lags (1970s) Results are robust to longer lags (1970s) They are robust to instrumenting inflation with an index of CB independence They are robust to instrumenting inflation with an index of CB independence

30. 30 Original Sin and Fiscal Solvency A government with weak fiscal accounts has an incentive to debase its currency in order to erode the value of its real obligations (Lucas and Stokey, 1983) A government with weak fiscal accounts has an incentive to debase its currency in order to erode the value of its real obligations (Lucas and Stokey, 1983) Corsetti and Mackowiack (2002) find that there is a vicious circle in which, in the presence of weak public finances, a large stock of foreign currency debt limits the ability to borrow in domestic currency Corsetti and Mackowiack (2002) find that there is a vicious circle in which, in the presence of weak public finances, a large stock of foreign currency debt limits the ability to borrow in domestic currency

31. 31 Original Sin and Fiscal Solvency (1) (2) (3) (4) (5) (6) (7) OSIN3 DE_GDP -0.073 0.050 (0.50) (0.31) DEFICIT 1.777 (0.92) DE_RE 0.014 (0.24) FISC -0.025 -0.024 (0.30) (0.28) DE_GDP*DEV 0.247 (0.88) DE_GDP*IND -0.186 (1.13) SIZE

32. 32 Original Sin and Contract Enforcement Investors are reluctant to lend in countries where the institutions designed to enforce their claims are weak Investors are reluctant to lend in countries where the institutions designed to enforce their claims are weak Chamon (2002) and Aghion, Bacchetta and Banerjee (2001) show that if depreciation and default risk are correlated and, if in case of default, assets are divided among creditors in proportion to their nominal claims, domestic currency market will disappear Chamon (2002) and Aghion, Bacchetta and Banerjee (2001) show that if depreciation and default risk are correlated and, if in case of default, assets are divided among creditors in proportion to their nominal claims, domestic currency market will disappear This problem could be solved if courts could enforce complicated contracts that distinguish among creditors of different seniority This problem could be solved if courts could enforce complicated contracts that distinguish among creditors of different seniority

33. 33 Original Sin and Contract Enforcement (1) (2) (3) OSIN3 RULEOFLAW -0.050 -0.053 -0.182 (0.46) (0.49) (2.33)** SIZE -0.323 -0.322 -0.480 (3.53)*** (3.48)*** (5.32)*** FIN_CENTER -0.883 (2.65)** EUROLAND -0.326 -0.325 (1.81)* (1.79)* OTH_DEVELOP ED -0.203 -0.201 (1.03) (1.01) Constant 1.388 1.390 1.486 (13.17)*** (13.08)*** (12.33)*** Observations 75 71 75

34. 34 Original Sin and Political Economy Original sin could be due to the absence of a domestic constituency of local currency debt- holders prepared to penalize a government that debase the currency Original sin could be due to the absence of a domestic constituency of local currency debt- holders prepared to penalize a government that debase the currency Tirole (2002) suggests that Original Sin may arise from the government’s inability to commit to protect the rights of foreigners Tirole (2002) suggests that Original Sin may arise from the government’s inability to commit to protect the rights of foreigners

35. 35 Original Sin and Political Economy (1) (2) (3) (6) OSIN3 DC_GDP -0.332 -0.554 (1.49) (2.99)*** FOR_DOM -7.289 7.224 (2.15)** (0.86) SIZE -0.290 -0.360 -0.323 -0.399 (3.22)*** (4.02)*** (3.72)*** (4.47)*** FIN_CENTER -0.753 -0.843 -0.895 (2.40)** (3.02)*** (3.23)*** EUROLAND -0.226 -0.301 -0.299 (1.37) (2.34)** (2.42)** OTH_DEVELOPED -0.224 -0.223 -0.254 (1.75)* (1.86)* (2.16)** Constant 1.521 1.431 1.291 1.636 (10.13)*** (13.76)*** (11.15)*** (11.32)*** Observations 74 73 72 74

36. 36 Digression on Domestic Original Sin It may be the case that the previous regressions do not yield any result because we are not able to measure the “real” size of the domestic local currency market It may be the case that the previous regressions do not yield any result because we are not able to measure the “real” size of the domestic local currency market This would require building a measure of domestic original sin and looking at how it relates to international original sin This would require building a measure of domestic original sin and looking at how it relates to international original sin

37. 37 Digression on Domestic Original Sin We were able to build such a measure for a small sample of 21 developing countries We were able to build such a measure for a small sample of 21 developing countries DLTDLTIPDLTIIDSTFC DLTIIDSTFC DSIN   

38. 38 Digression on Domestic Original Sin DSIN2 OSIN3 0.25.5.751 0.25.5.75 1 POL CZE ZAF HKG TWN SGP SVK THA EGY ARG CHL HUN IDN PHL MEX MYS BRA TUR IND ISR VEN DSIN=0.25+0.37*OSIN3 p value on slope coefficient 0.11 R2=0.13 N= 21

39. 39 Digression on Domestic Original Sin (1.18) (3.24)*** Constant -0.064 0.335 0.217 0.607 0.906 0.218 0.576 0.008 (0.17) (0.49) (1.09) (6.38)*** (4.39)*** (0.43) (7.48)*** (0.04) Observations 21 20 18 21 R-squared 0.09 0.01 0.15 0.08 0.18 0.28 0.07 0.37

40. 40 Digression on Domestic Original Sin DSIN2 OSIN3 0.25.5.751 0.25.5.75 1 POL CZE ZAF HKG TWN SGP SVK THA EGY ARG CHL HUN IDN PHL MEX MYS BRA TUR IND ISR VEN CC=0.45 CC=0.69 CC=0.50 Not significantly different

41. 41 Digression on Domestic Original Sin There is some (weak) evidence that capital controls may help in reducing domestic original sin There is some (weak) evidence that capital controls may help in reducing domestic original sin However, it looks as if capital controls are bad for for international original sin However, it looks as if capital controls are bad for for international original sin

42. Back to International Original Sin

43. 43 Putting Everything Together (1) (2) (3) (4) OSIN SIZE -0.302 -0.325 -0.326 -0.352 (3.32)*** (3.48)*** (3.50)*** (3.88)*** GDP per cap -0.262 -0.127 -0.248 (2.08)** (1.31) (2.30)** AV_INF 0.288 0.150 0.070 0.274 (0.89) (0.49) (0.29) (0.88) DE_GDP -0.003 -0.102 0.044 -0.002 (0.02) (0.60) (0.26) (0.01) RULE of LAW 0.305 0.091 -0.291 (1.88)* (0.70) (1.25) DC_GDP -0.313 -0.173 -0.403 0.255 (1.05) (0.59) (1.38) (1.61) FIN_CENTER -0.492 -0.453 -0.680 (1.45) (1.31) (2.06)** EUROLAND 0.032 0.010 -0.220 (0.15) (0.04) (1.18) OTH_DEVEL. -0.053 0.030 -0.299 (0.24) (0.14) (1.55) Constant 3.506 2.505 1.516 3.437 (3.54)*** (3.22)*** (7.66)*** (4.03)*** Observations 63 (5) OSIN -0.374 (4.05)*** -0.113 (1.82)* 0.099 (0.36) -0.062 (0.37) -0.269 (1.14) 3.437 (4.03)*** 63

44. 44 SIZE always significant SIZE always significant When we include one variable at a time, we find that: When we include one variable at a time, we find that: If we control for country groups there is no other variable that is significantly correlated with Original Sin If we control for country groups there is no other variable that is significantly correlated with Original Sin If we do not control for country groups, GDP per capita, inflation, rule of law, and size of the financial system are correlated with Original Sin If we do not control for country groups, GDP per capita, inflation, rule of law, and size of the financial system are correlated with Original Sin When we jointly test all the hypotheses, we find that: When we jointly test all the hypotheses, we find that: When country groups are included, only SIZE is robustly correlated with Original Sin When country groups are included, only SIZE is robustly correlated with Original Sin When country groups are dropped, GDP per capita is marginally significant When country groups are dropped, GDP per capita is marginally significant

45. 45 Original sin is not merely a problem of country policies (one need not deny the relevance of these, of course) Original sin is not merely a problem of country policies (one need not deny the relevance of these, of course) It is also a problem with the operation of the international system It is also a problem with the operation of the international system In a world with transaction costs and decreasing returns to diversification, the global portfolio may have a limited number of currency In a world with transaction costs and decreasing returns to diversification, the global portfolio may have a limited number of currency If larger countries offer better opportunity for diversification, country size will matter in the choice of the global portfolio If larger countries offer better opportunity for diversification, country size will matter in the choice of the global portfolio Redemption therefore requires international action to overcome the inertia in the system Redemption therefore requires international action to overcome the inertia in the system

46. 46 Lessons from outliers An interesting fact about the international issuance of bonds in exotic currency is that it is mostly done by non-residents who then swap the debt-service obligation back to US dollar An interesting fact about the international issuance of bonds in exotic currency is that it is mostly done by non-residents who then swap the debt-service obligation back to US dollar

47. 47 Share of local currency international debt issued by non-residents 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1 Czech Republic South Africa New Zealand PolandHong KongDenmarkCanadaSingaporeAustralia

48. 48 Lessons from outliers An interesting fact about the international issuance of bonds in exotic currency is that it is mostly done by non-residents who then swap the debt-service obligation back to US dollar An interesting fact about the international issuance of bonds in exotic currency is that it is mostly done by non-residents who then swap the debt-service obligation back to US dollar They do this to reduce cost of funding They do this to reduce cost of funding But, why is this complex operation cheaper than borrowing directly in dollar? But, why is this complex operation cheaper than borrowing directly in dollar? A possibility is that the market values the possibility of separating currency and credit risk A possibility is that the market values the possibility of separating currency and credit risk The IFIs have a natural hedge and could play a role in expanding this market The IFIs have a natural hedge and could play a role in expanding this market

49. 49 Conclusions Original Sin is a widespread phenomenon Original Sin is a widespread phenomenon It has costs It has costs Limits the ability to conduct monetary policy Limits the ability to conduct monetary policy Increases volatility Increases volatility Increases credit risk Increases credit risk It cannot be easily explained by weak policies or institutions It cannot be easily explained by weak policies or institutions Country size seems to be important Country size seems to be important The IFIs could play a role in reducing Original Sin The IFIs could play a role in reducing Original Sin

50. 50 The Pain and the Mystery of Original Sin Barry Eichengreen Ricardo Hausmann Ugo Panizza

51. 51 Original Sin and Credit Ratings (1) (2) (3) (4) (5) (6) RATING Original Sin -5.100 -4.751 (3.38)*** (3.32)*** Debt/GDP advanced 4.814 -2.659 -1.553 -2.451 (2.30)** (1.24) (1.31) (2.05)** Debt/GDP developing -8.627 -3.671 -3.557 -2.475 (4.96)*** (2.34)** (2.66)** (1.84)* Developing -9.027 -3.004 (5.78)*** (2.38)** Debt/GDP high rating 5.783 -1.511 (3.10)*** (0.83) Debt/GDP low rating -9.207 -4.438 (5.85)*** (3.36)*** High rating 8.917 (6.60)*** GDP per capita 2.663 1.936 (6.71)*** (4.00)*** Ex Debt/GDP 2.252 1.751 (1.50) (1.22) Constant 13.999 19.757 14.138 11.028 -6.314 1.606 (15.60)*** (15.27)*** (17.51)*** (15.03)*** (1.58) (0.32) Observations 61 56 DEG_DEV=DEG_ADV DEG_HR=DEG_LR F(1,59)=41.31 F(1,58)=0.14 F(1,59)=62.7 F(1,58)=1.69 P=0.000 P=0.705 P=0.000 P=0.199