During the 1990s, the concept of ""catalytic official finance"" (COF) gained prominence in policy debates. The concept revolves around the idea that the propensity of investors to lend to a country increases when the IMF provides its ""seal of approval""-backed up by only limited official...

This paper tests empirically the theoretical prediction that the country premium paid by emerging economies on sovereign debt increases with the amount of debt up to a certain critical level, above which the supply of foreign funds becomes fixed. The results confirm this theoretical prediction....