Pernicious effects: How the credit rating agencies disadvantage emerging markets

This paper provides a synthesis of the literature on biases in sovereign credit ratings. Credit rating agencies favor their home countries and the homes of their major shareholders to the detriment of foreign countries. These home and foreign biases have multiple sources, each of which is especially at the disadvantage of emerging markets. While the characteristics of emerging debt markets make these countries particularly vulnerable to a downward bias in their sovereign credit rating, the consequences of a bad rating are especially severe here. A low credit rating increases borrowing costs, hampers access to international capital markets and inflates risk.