A study of debt servicing capacity applying logit analysis

Abstract This paper empirically investigates the importance of various economic factors in determining debt servicing capacity of borrowing countries. The paper builds on earlier work by Frank and Cline (1971) and Dhonte (1975) who tried to identify empirically the more important factors. Using logit analysis and significance tests, this paper suggests several factors which are important determinants of default probabilities. These findings are consistent with the descriptive literature on international borrowing. The estimates for predictive ability of the model are checked with alternative data and confirm a relatively low rate of error (around 4 percent).