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Foreign direct investments from emerging markets: The push-pull effects of sovereign credit ratings

Peilin Cai, Suk-Joong Kim and Eliza Wu

International Review of Financial Analysis, 2019, vol. 61, issue C, 110-125

Abstract: This paper analyses the determinants of FDIs from emerging market countries. We investigate the role of sovereign credit ratings of both donor and recipient countries in determining bilateral FDI flows from 17 emerging countries to 71 recipient countries. We find that sovereign credit ratings are important determinants of emerging market FDI. Donor sovereign credit ratings have a positive relationship with FDI outflows, suggesting that emerging market investors are more likely to engage in FDI activities when their own ratings strengthen. We find that emerging market FDI investors invest more in high rating advanced countries and low rating emerging market countries when their own rating improves. In addition, they invest more in high rating advanced countries with rating downgrades and low rating emerging market countries with rating upgrades. Furthermore, we find that donor emerging market countries with better institutional quality are more likely to invest directly abroad. Emerging market recipients with a stronger institutional environment are able to attract more FDI from other emerging markets while the institutional quality of developed market recipients matter less.

Keywords: Sovereign credit rating; FDI; Emerging markets; Institutional quality (search for similar items in EconPapers)
JEL-codes: F30 G15 (search for similar items in EconPapers)
Date: 2019
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Handle: RePEc:eee:finana:v:61:y:2019:i:c:p:110-125