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A Study of Country-Risk for Non-Developed Countries in 1980-2000

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  • Gonzalez, M.
  • Minguez, R.

Abstract

This article aims at discovering a coherent method for estimating country risk for non-developed countries, determining the components and most significant factors involved and thus avoiding the “black boxes” represented by external agency ratings. The data used form a panel of 40 non-developed countries, grouped into 5 geographical areas, during the 1985-2000 period (World Bank database, 2002). A credit rating is allocated to the countries concerned based on criteria similar to those applied to business solvency, and we then attempt to explain this rating by other macroeconomic factors obtained from the same database. The model employed to determine the probabilities corresponding to each individual at each moment in time and according to the allocated rating, is an ordered probit on panel data. The results obtained indicate that there is a high degree of time correlation in country credit ratings and, furthermore, that the probability of their insolvency is also influenced by random effects of heterogeneity.

Suggested Citation

  • Gonzalez, M. & Minguez, R., 2005. "A Study of Country-Risk for Non-Developed Countries in 1980-2000," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 5(1).
    • Handle: RePEc:eaa:aeinde:v:1:y:2005:i:1_4
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    References listed on IDEAS

    as
    1. Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, vol. 89(3), pages 473-500, June.
    2. Geweke, John & Keane, Michael P & Runkle, David, 1994. "Alternative Computational Approaches to Inference in the Multinomial Probit Model," The Review of Economics and Statistics, MIT Press, vol. 76(4), pages 609-632, November.
    3. Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, vol. 89(3), pages 473-500, June.
    4. Mr. Andrew Berg & Rebecca N. Coke, 2004. "Autocorrelation-Corrected Standard Errors in Panel Probits: An Application to Currency Crisis Prediction," IMF Working Papers 2004/039, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Country risk; panel data; external debt; national saving; ordered probit;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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