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

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  • Emara, Noha
  • El Said, Aya

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.

Suggested Citation

  • Emara, Noha & El Said, Aya, 2019. "Sovereign Ratings, Foreign Direct Investment, and Financial Contagion: The Case of Emerging Markets," MPRA Paper 94504, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:94504
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    More about this item

    Keywords

    Sovereign Rating; Capital Flows; System GMM; Foreign Direct Investment; Emerging Markets;
    All these keywords.

    JEL classification:

    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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