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A Country Risk Assessment Model and the Asian Crisis

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  • Timur Han Gur

Abstract

This paper estimates country risk using an alternative method to commonly used country risk models by the rating agencies. The paper builds on earlier work and tries to identify empirically the important factors affecting debt service capacity of borrowing countries. In this study we assess the riskiness of 34 developing countries over the period 1986 to 1998 using a two-limit Tobit model. In the model a-year-ahead debt rescheduling ratios are used as the dependent variable. Using the debt rescheduling ratios, we emphasize the role of relative sizes of debt rescheduling in predicting external debt crisis. The model is tested for its predictability of the external debt crises and the results are compared with the rating of S&P and Moody's. A special emphasis is given to the recent Asian crisis and its predictability.

Suggested Citation

  • Timur Han Gur, 2001. "A Country Risk Assessment Model and the Asian Crisis," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 1(1), pages 49-68.
    • Handle: RePEc:tcb:cebare:v:1:y:2001:i:1:p:49-68
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    File URL: https://www.tcmb.gov.tr/wps/wcm/connect/EN/TCMB+EN/Main+Menu/Publications/Central+Bank+Review/2001/Volume+1-1/
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    References listed on IDEAS

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    1. Hernandez-Trillo, Fausto, 1995. "A model-based estimation of the probability of default in sovereign credit markets," Journal of Development Economics, Elsevier, vol. 46(1), pages 163-179, February.
    2. Christopher Ngassam, 1991. "Factors affecting the external debt-servicing capacity of African nations: An empirical investigation," The Review of Black Political Economy, Springer;National Economic Association, vol. 20(2), pages 45-64, December.
    3. Rosett, Richard N & Nelson, Forrest D, 1975. "Estimation of the Two-Limit Probit Regression Model," Econometrica, Econometric Society, vol. 43(1), pages 141-146, January.
    4. Homi Kharas, 1984. "The Long-Run Creditworthiness of Developing Countries: Theory and Practice," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 99(3), pages 415-439.
    5. Feder, Gershon & Just, Richard E., 1977. "A study of debt servicing capacity applying logit analysis," Journal of Development Economics, Elsevier, vol. 4(1), pages 25-38, February.
    6. Hajivassiliou, Vassilis A., 1987. "The external debt repayments problems of LDC's : An econometric model based on panel data," Journal of Econometrics, Elsevier, vol. 36(1-2), pages 205-230.
    7. Feder, Gershon & Just, Richard & Ross, Knud, 1981. "Projecting Debt Servicing Capacity of Developing Countries," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 16(5), pages 651-669, December.
    8. James Tobin, 1956. "Estimation of Relationships for Limited Dependent Variables," Cowles Foundation Discussion Papers 3R, Cowles Foundation for Research in Economics, Yale University.
    9. Frank, Charles Jr. & Cline, William R., 1971. "Measurement of debt servicing capacity: An application of discriminant analysis," Journal of International Economics, Elsevier, vol. 1(3), pages 327-344, August.
    10. Amemiya, Takeshi, 1984. "Tobit models: A survey," Journal of Econometrics, Elsevier, vol. 24(1-2), pages 3-61.
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    Cited by:

    1. Midoun Sissani & Zairi Belkacem, 2014. "The Impact Of Country Risk Components On Algeria Attractiveness For Foreign Direct Investments (1990-2012)," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 14(1), pages 133-146.
    2. See-Nie Lee & Fan-Fah Cheng & Chee-Wooi Hooy & Mohamed Hisham Dato Haji Yahya, 2017. "Volatility Contagion in Selected Six Asian Countries: Evidence from Country Debt Risk and Determinant Indicators," International Journal of Business and Administrative Studies, Professor Dr. Bahaudin G. Mujtaba, vol. 3(2), pages 36-55.

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    More about this item

    Keywords

    Sovereign Rating; Country Risk; Debt Crises;
    All these keywords.

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems

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