DOMESTIC CREDITOR RIGHTS AND EXTERNAL PRIVATE DEBT

This article unbundles institutions protecting domestic and foreign creditors' rights. We estimate a negative relation between the degree of domestic rights protection and the external stock of private non-guaranteed debt in 85 developing countries. A supply-side explanation is that strong domestic protection supports reliable outside financing options for potential external debt defaulters; foreign investors anticipating this would tighten credit constraints ex ante. Then we formalise the argument in a private borrowing and default model, and show that centralisation is no longer necessarily welfare superior.