| Abstract: |
Official (government-to-government) lending is much larger than commonly
known, often surpassing total private cross-border capital flows, especially
during disasters such as wars, financial crises and natural catastrophes. We
assemble the first comprehensive long-run dataset of official international
lending, covering 230,000 loans, grants and guarantees extended by
governments, central banks, and multilateral institutions in the period
1790-2015. Historically, wars have been the main catalyst of
government-to-government transfers. The scale of official credits granted in
and around WW1 and WW2 was particularly large, easily surpassing the scale of
total international bailout lending after the 2008 crash. During peacetime,
development finance and financial crises are the main drivers of official
cross-border finance, with official flows often stepping in when private flows
retrench. In line with the predictions of recent theoretical contributions, we
find that official lending increases with the degree of economic integration.
In crises and disasters, governments help those countries to which they have
greater trade and banking exposure, hoping to reduce the collateral damage to
their own economies. Since the 2000s, official finance has made a sharp
comeback, largely due to the rise of China as an international creditor and
the return of central bank cross-border lending in times of stress, this time
in the form of swap lines. |