The Determinants of Sovereign Risk Premium in African Countries

Jane Mpapalika () and Christopher Malikane
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Christopher Malikane: Department of Economics, School of Economics and Business Sciences, University of the Witwatersrand, Johannesburg 2000, South Africa

JRFM, 2019, vol. 12, issue 1, 1-20

Abstract: This paper investigates the determinants of the sovereign risk premium in African countries. We employ the dynamic fixed effects model to determine the key drivers of sovereign bond spreads. Country-specific effects are fixed and the inclusion of dummy variables using the Bai–Perron multiple structural break test is significant at a 5% level. For robustness, the time-series generalized method of moments (GMM) is used where the null hypothesis of the Sargan Test of over-identifying restrictions (OIR) and the Arellano–Bond Test of no autocorrelation are not rejected. This implies that the instruments used are valid and relevant. In addition, there is no autocorrelation in the error terms. Our results show that the exchange rate, Money supply/GDP (M2/GDP) ratio, and trade are insignificant. Furthermore, our findings indicate that public debt/GDP ratio, GDP growth, inflation rate, foreign exchange reserves, commodity price, and market sentiment are significant at a 5% and 10% level.

Keywords: sovereign risk/debt; risk premium; sovereign defaults; African countries (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Working Paper: The determinants of sovereign risk premium in African countries (2019)
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