This dissertation consists of three chapters and is centered on the issues of external debt default and growth. In the first chapter, we develop a macrodynamic model of a small open economy that incorporates the effects of haircut and external debt default on the borrowing cost of a debtor country. We argue that the ability to impose a substantial haircut, a reduction in external debt in the face of a sovereign default can work as a strong enough incentive for a debtor country to borrow heavily even when it faces an increased default risk. Calibrating our model to real world data and employing numerical simulations we show that the observed overborrowing and consequently multiple external debt defaults by many countries around the world are equilibrium outcomes in the presence of the haircut induced benefit of sovereign default. Chapter two empirically investigates how debt default affects growth in low-income countries that have a high debt burden. We adopt Rose’s (2005) methodology of using dummy variables to examine both the contemporaneous and lagged effects of debt default on growth in countries that received debt relief assistance under the Heavily Indebted Poor Countries Initiative (HIPC). An inflow of capital is expected to affect these economies differently than other countries which are not eligible for the HIPC initiative. Our findings indicate that initiation of an external debt default leads to a downturn in growth, possibly due to the uncertainty created by such an event. However, debt renegotiation marking the conclusion of a default spell helps to revive growth and contributes to about 1 percentage point increase in growth for these countries. This positive growth effect of successful completion of a default episode is robust to different specifications and is pertinent even in the long run. In the third chapter, we examine the differential impacts of debt renegotiation on the various sectors within an economy. We analyze more than fifty years of data for ten broadly defined sectors from twenty-four mostly developing countries around the world. Our results indicate that debt rescheduling is associated with five to nine percent growth in sectoral productivity in countries outside of sub-Saharan Africa. This positive impact of debt renegotiation is particularly significant in the sectors of mining, construction, trade services, transport services, business services and personal services. Our findings provide support to the postulations of the debt overhang theory and the crowding out theory at sectoral level.

Consumption loans has increased considerably during 2010-2019 and thus affected householddebt and financial stability due to high interest rates with short maturity. To investigate thesubject multiple neoclassical models has been used additional to a regression analysis with adequate variables and descriptive diagrams. Mental health has seemingly worsened from 2010and onwards, so we want to investigate whether it’s due to rising debt levels or not. For that we investigate the variables anxiety, depression, and migraine for the mental health parameter. In this thesis we want to analyze whether there is a causal relationship between debt and mentalhealth between 2010 and 2019. The main conclusion is that there are some correlations between debt and mental health for females 25-54 and 55-64 years old. Females 18-25 years old had a negative correlation between debt and mental health. Likewise did males in all age categories. For males 55-64 years old a strong correlation between unemployment and mental health issues was found. No causal relationship between debt and mental health issues can be established inthis paper due to inexplicit correlations.

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This thesis provides a comprehensive analysis of the determinants for the optimal choice of contract terms on a unique type of debt instrument: Eurobonds. A discussion of corporate finance theories that postulate the use of debt contract features for mitigating financing inefficiencies provides the foundation for the development of the empirical investigation. More specifically, theories that associate the choice of debt features namely, maturity, call options, convertible options, and protective covenants with firm's and market's characteristics are discussed in detail. Emphasis is also given to the theoretical predictions about the interdependencies established between the debt features that are viewed as alternative control devises for mitigating debt-contracting costs. Panel data and simultaneous-equations estimation methods are used to regress the relevant debt features on a set of proxies for firm characteristics, market conditions, and related contract features for a sample of 377 Eurobonds issued by UK companies over the period 1986-1999. The evidence from both panel data and simultaneous-equations analyses provide strong support to the prediction that both callable and short-term debt and convertible and debt with protective covenants are used as alternative control devises to mitigate agency costs. Further evidence suggests, however, that contrary to the fundamentals guiding the choice of maturity and callability structures, the use of convertible options and protective covenants in Eurobond contracts seems to be determined by equity agency costs rather than debt agency costs. Some support is also found for the risk uncertainty theory underlying the use of convertibles and for the liquidity risk arguments regarding the choice of protective covenants. No support is found for signalling and interest tax-shield hypotheses. Some proposals for further research on debt contract design are identified and discussed.

This paper looks into the contagion dynamics of sovereign credit rating changes with regards to bond yields in the period before and during the sovereign debt crisis in Europe. Our sample included European Union member countries, as well as a Eurozone subsample and a subsample excluding highly indebted countries. Events and outlooks from all three major rating agencies were considered. Our findings for the pre-crisis period are consistent with existing research, indicating an increase in borrowing costs by approximately five basis points in the case of a one-notch negative event, and insignificant effects in the case of positive events. During the crisis period, we observed a reversal of this effect, associating negative ratings with lower spreads on the entire sample. However, the effect was no longer significant when highly indebted countries were excluded from the sample, indicating that this effect may be tied to overly negative expectations. Lastly, we investigated the persistence of results, with only full-sample crisis period data displaying persistent effects. JEL Classification F01, F34, F42 Keywords credit rating, sovereign debt, default, debt crisis, European debt, sustainability Author's e-mail martin1703@gmail.com Supervisor's e-mail schneider.ondrej@gmail.com

Master of Arts / Department of Economics / Lloyd B. Thomas Jr / The European sovereign debt crisis has had a profound impact on the rest of the world. The “debt crisis” refers to the rapid accumulation of debt within some struggling euro-zone countries. This debt accumulation has resulted in a variety of financial bailouts made to various countries within the European Union and a debt default by the country of Greece. The results of this crisis have changed the way of life for many living within the struggling economies. Division within the euro zone, on both policy and ideology, has begged the question of whether the euro will be able to survive in the long term. The purpose of this report is to investigate the buildup and evolution of this crisis, as well as to highlight various responses and proposed solutions of the future.

Thesis advisor: Harold Petersen / By now, it is no secret to the global community that the many African countries lag far behind the rest of the world in terms of poverty rates, life expectancy, standard of living, per capita income, health, GDP and economic growth. This thesis examines the economic impact of HIV/AIDS on African economies and the potential for debt relief to mitigate some of the negative impacts of HIV/AIDS on African economies. / Thesis (BA) — Boston College, 2006. / Submitted to: Boston College. College of Arts and Sciences. / Discipline: Economics Honors Program.

This paper uses a two-stage, dynamic partial adjustment model which accounts for potential mean-reversion, with the Arellano-Bover GMM estimation technique, to observe the effect of various macroeconomic variables on the speed at which South African listed firms adjust toward their target capital structures. Employing two definitions of financial constraints, these effects were also compared for financially constrained and unconstrained subsamples. Using a sample of listed firms spanning from 2000 to 2010, the findings of the study show some indication that firms adjust faster in unfavourable macroeconomic states relative to favourable states. There is also evidence to suggest that the adjustment dynamics of unconstrained firms differ from that of constrained firms. In addition, higher adjustment speeds are generally observed when using short-term debt relative to other debt definitions. However, the evidence is largely inconclusive as adjustment speed estimates are highly sensitive to the definition of financial constraints used, and to the inclusion of extreme leverage observations.

The thesis examines the influence of institutional, macroeconomic, industry and firm characteristics on financing decisions of firms in nine select countries in Africa. It develops a battery of econometric models and examines 10 year (1999-2008) data pertaining to 986 non-financial firms and sample countries using various estimation procedures. The results suggest that financing decisions of firms in Africa is not only determined by firm characteristics (such as firm size and profitability, growth opportunities, asset tangibility and/or maturity, earnings volatility, dividend payout and non-debt-related tax-shield) but also by industry, macroeconomic (income group of the country, size of the overall economy and its growth, inflation and taxation) and institutional (legal origin, investor rights protection and law enforcement) factors. The research also demonstrates that firms in Africa face adjustment costs and/or benefits in rebalancing their capital and debt maturity structures to the optimal and such costs depend on select firm, industry, macroeconomic and institutional factors. Our findings signify that firms in Africa are concerned about transaction, agency and bankruptcy costs; information asymmetry and adverse selection problems; financial flexibility and access to finance issues; tax regimes, investor rights protection and law enforceability, among others in making their financing decisions. It is strongly recommended that governments, policy makers, and other stakeholders should pull their efforts together to come up with legislations, policies and directives that enhance investor rights protection and law enforcement which will in turn boost the confidence of market participants. The study also recommends that governments should use interest rate restraints and reserve and liquidity requirements to enhance financial deepening which will in turn enhance investors’ confidence.

Thesis advisor: Fabio Schiantarelli / In the aftermath of the Great Recession of 2007-2009, Europe has been grappling with both a debt and a banking crisis, which caused a prolonged recession and on-going stagnation in some countries of the Eurozone. The distinctive feature of the European crisis, compared to the global recession that originated in the United States, is that it emerged as sovereign debt crisis and later evolved into a banking crisis, finally affecting the real economy. The banking and sovereign crises are heavily intertwined because of the interplay between banks and sovereigns in Europe. In fact, the so-called bank-sovereign nexus works both ways: not only banks hold large amounts of sovereign debt, especially from the domestic government, but also European governments retain a significant presence in the domestic banks' ownership. The adverse feedback loop is reinforced during a sovereign debt crisis, as banks' losses from sovereign debt further exacerbate the strain on the domestic sovereign in expectation of a future bail-out. The overall goal of this dissertation is to have a better understanding of the interplay between sovereign, banks and capital regulation. In my first and second chapter, I analyze the two-way feedback loop between banks and sovereigns in Europe. In particular, in the first chapter, I show that banks' sovereign debt exposures had a negative effect on credit supply during the crisis. In the second chapter I explore the role that politics may play in determining banks' exposure to sovereign debt. Finally, the third chapter investigates the effect of changing bank capital requirements for the firms that borrow from the affected banks. / Thesis (PhD) — Boston College, 2015. / Submitted to: Boston College. Graduate School of Arts and Sciences. / Discipline: Economics.