Sovereign Ratings, Foreign Direct Investment, and Financial Contagion: The Case of Emerging Markets

Noha Emara and Aya El Said

MPRA Paper from University Library of Munich, Germany

Abstract: Using dynamic panel System GMM for 24 EMs over the period 1990-2014, we analyze how changes in sovereign ratings affect FDI inflows to EMs. The study also estimates the contagion effect of a ratings change among any of the BRICS countries on three regions, Europe, the Middle East, and Africa (EMEA) and Latin America and Asia. Third, we estimate the impact of a ratings change on FDI inflows in the presence of two types of crises, the 2007-2009 global financial crisis as well as country-specific crises. The results suggest that sovereign ratings have a statistically significant impact on the flow of FDI to EMs and that the BRICS countries as a bloc exert a statistically significant contagion impact on the FDI inflows into the three regions examined. We also find that the impact of a sovereign ratings change on FDI inflows increases in crisis times, both country-specific, as well as the global financial crisis.

Keywords: Sovereign Rating; Capital Flows; System GMM; Foreign Direct Investment; Emerging Markets (search for similar items in EconPapers)
JEL-codes: N20 O16 O43 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-cis and nep-int
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https://mpra.ub.uni-muenchen.de/99311/1/MPRA_paper_94504.pdf revised version (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:94504

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