Domestic Terrorism and Sovereign Bond Ratings in the Developing World

Glen Biglaiser, Lance Y. Hunter and Ronald J. McGauvran

Terrorism and Political Violence, 2023, vol. 35, issue 4, 754-784

Abstract: Since the 1990s, credit rating agencies have played a prominent financial role in developing countries, rating their sovereign bonds and determining capital costs. Over much the same years, domestic terrorism has expanded, increasing market disruptions in countries. Despite the heightened costs related to rebel attacks, few studies investigate the impact of domestic terrorism on bond ratings. Using a sample of seventy-one developing countries between 1996 and 2018, we find that domestic terrorist incidents result in sovereign bond downgrades for countries that receive ratings. Further, when we disaggregate terrorist events by target type, we observe that attacks directed at the government, military and police, business, non-governmental organizations, and private citizens/property have a larger effect than other terrorist incidents. We argue that specific domestic terrorist attacks increase economic instability, leading to capital flight, and a shifting of resources from productive economic sectors to counterterrorism. The resulting economic changes weaken a country’s economy and increase debt nonpayment risk.

Date: 2023
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/09546553.2021.1974004 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:ftpvxx:v:35:y:2023:i:4:p:754-784

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/ftpv20

DOI: 10.1080/09546553.2021.1974004

Access Statistics for this article

Terrorism and Political Violence is currently edited by James Forest

More articles in Terrorism and Political Violence from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().