I've had one overseas item go astray. I refunded the money (not a large amount) and made a claim on the UK postal service. They paid up. Another package was returned to me after two months as undeliverable despite the fact that the address was exactly as provided by the buyer. Both these items were going to eastern Europe!
Two months seems a long time to me though but if the package was, say missent to another country or maybe directed to a surface route then it's not all that long. Of course as Flurin says it may be languishing somewhere.
If you buyer has recourse through Paypal that's fine but if not, if it were me, I think I'd have to pay up after a reasonable amount of time.