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Impact of International capital flows on emerging markets’ sovereign risk premium – demand vs. vulnerability effect

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  • Konopczak, Karolina
  • Konopczak, Michał

Abstract

In recent years many developing economies attracted significant foreign capital. An increased share of non-residents in public debt affects sovereign bond yields in two opposing ways: triggering a downward pressure on yields in reaction to increased demand, and an upward pressure reflective of overreliance on external funding and greater vulnerability to sudden stops of capital inflows. Based on panel cointegration analysis of 14 emerging economies, this study – contrary to previous empirical literature – indicates that in the long run the positive-signed vulnerability effect may prevail over the negative-signed demand effect, though with significant heterogeneity across countries.

Suggested Citation

  • Konopczak, Karolina & Konopczak, Michał, 2017. "Impact of International capital flows on emerging markets’ sovereign risk premium – demand vs. vulnerability effect," Finance Research Letters, Elsevier, vol. 23(C), pages 239-245.
    • Handle: RePEc:eee:finlet:v:23:y:2017:i:c:p:239-245
    DOI: 10.1016/j.frl.2017.07.010
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    3. Luitel, Prabesh & Vanp�e, Rosanne, 2018. "How do sovereign credit ratings help to financially develop low-developed countries?," ECMI Papers 13956, Centre for European Policy Studies.

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    More about this item

    Keywords

    Emerging markets; Sovereign risk; International capital flows; Panel cointegration;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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