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The Determinants of Sovereign Risk Premium in African Countries

Author

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  • Jane Mpapalika

    (Department of Knowledge Management and Innovation, Economic and Social Research Foundation (ESRF), Ursino Estates P.O. Box 31226, Tanzania)

  • Christopher Malikane

    (Department of Economics, School of Economics and Business Sciences, University of the Witwatersrand, Johannesburg 2000, South Africa)

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.

Suggested Citation

  • Jane Mpapalika & Christopher Malikane, 2019. "The Determinants of Sovereign Risk Premium in African Countries," JRFM, MDPI, vol. 12(1), pages 1-20, February.
    • Handle: RePEc:gam:jjrfmx:v:12:y:2019:i:1:p:29-:d:204553
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    3. Guenette,Justin Damien, 2020. "Price Controls : Good Intentions, Bad Outcomes," Policy Research Working Paper Series 9212, The World Bank.
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    5. Mwankemwa, Lusajo P. & Ndanshau, Michael O.A., 2021. "Asymmetric Effects of Fiscal Deficit on Monetary Policy Transmission in Tanzania," African Journal of Economic Review, African Journal of Economic Review, vol. 9(4), September.
    6. Taguchi, Hiroyuki, 2021. "Determinants of country risk premium revisit: Evidence for emerging market and developing economies," MPRA Paper 107078, University Library of Munich, Germany.
    7. Jane Mpapalika, 2020. "Alternative Financing Instruments for African Economies," 2020 Papers pmp2, Job Market Papers.

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    More about this item

    Keywords

    sovereign risk/debt; risk premium; sovereign defaults; African countries;
    All these keywords.

    JEL classification:

    • C - Mathematical and Quantitative Methods
    • E - Macroeconomics and Monetary Economics
    • F2 - International Economics - - International Factor Movements and International Business
    • F3 - International Economics - - International Finance
    • G - Financial Economics

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