Duration of Capital Market Exclusion: An Empirical Investigation

Abstract

This paper investigates the duration of market exclusion following a sovereign default and its resolution. We employ multiple definitions of market access, differentiating between gross and net borrowing and partial and full access, to measure the time it takes for countries to regain entry into international capital markets following a sovereign default and resolution. Our findings indicate that market re‐access can occur immediately under less stringent definitions but may take several years when more demanding criteria are applied. Middle‐income countries typically regain access more quickly than low‐income nations, with significant variation across historical periods. In addition to traditional push‐pull factors, we find that default‐specific characteristics play an important role in the duration of market exclusion. Key factors influencing re‐access include the occurrence of natural disasters prior to the default, the presence of an IMF program, the severity of investor losses, the country's economic outlook, and global liquidity conditions. These findings contribute to the academic literature on sovereign defaults and inform the design of effective post‐default support strategies by policymakers and international financial institutions.