Revisiting sovereign ratings, capital flows and financial contagion in emerging markets

Emara, Noha (2015): Revisiting sovereign ratings, capital flows and financial contagion in emerging markets. Published in: World Journal of Applied Economics , Vol. 1, No. 2

Abstract

This study revisits sovereign credit ratings, contagion and capital flows to Emerging Markets (EMs), and clarify the relationship between them. Specifically, this study analyzes how the changes in sovereign rating influence different types of capital flows to EMs and whether the changes in the different kinds of capital flows in one country be explained by a sovereign ratings’ change in another country. Using Arellano-Bover/Blundell-Bond Dynamic Panel System GMM for 23 EMs over the period 1990-2012 the results of the study suggest that sovereign ratings is a crucial factor for EMs’ access to international capital markets and that capital flows is a major source of financing for Ems. In addition, the results show that financial contagion may continue to be a threat to capital flowing into EMs and that financial crisis increases the impact of sovereign rating on foreign direct investment but is not the case with portfolio investment.

• Item Type: MPRA Paper
• Language: English
• Keywords: Sovereign Rating; Capital Flows; System GMM; Foreign Direct Investment; Portfolio Investment
• Subjects: N - Economic History > N2 - Financial Markets and Institutions > N20 - General, International, or Comparative; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O16 - Financial Markets ; Saving and Capital Investment ; Corporate Finance and Governance; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O43 - Institutions and Growth

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