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An Empirical Assessment of Country Risk Ratings and Associated Models

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  • Suhejla Hoti
  • Michael McAleer

Abstract

Country risk has become a topic of major concern for the international financial community over the last two decades. The importance of country ratings is underscored by the existence of several major country risk rating agencies, namely the Economist Intelligence Unit, Euromoney, Institutional Investor, International Country Risk Guide, Moody's, Political Risk Services, and Standard and Poor's. These risk rating agencies employ different methods to determine country risk ratings, combining a range of qualitative and quantitative information regarding alternative measures of economic, financial and political risk into associated composite risk ratings. However, the accuracy of any risk rating agency with regard to any or all of these measures is open to question. For this reason, it is necessary to review the literature relating to empirical country risk models according to established statistical and econometric criteria used in estimation, evaluation and forecasting. Such an evaluation permits a critical assessment of the relevance and practicality of the country risk literature. The paper also provides an international comparison of risk ratings for twelve countries from six geographic regions. These ratings are compiled by the International Country Risk Guide, which is the only rating agency to provide detailed and consistent monthly data over an extended period for a large number of countries. The time series data permit a comparative assessment of the international country risk ratings, and highlight the importance of economic, financial and political risk ratings as components of a composite risk rating. Copyright Blackwell Publishers Ltd, 2004.

Suggested Citation

  • Suhejla Hoti & Michael McAleer, 2004. "An Empirical Assessment of Country Risk Ratings and Associated Models," Journal of Economic Surveys, Wiley Blackwell, vol. 18(4), pages 539-588, September.
  • Handle: RePEc:bla:jecsur:v:18:y:2004:i:4:p:539-588
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    Citations

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    Cited by:

    1. Jorgensen, Ole Hagen & Apostolou, Apostolos, 2013. "Brazil's bank spread in international context : from macro to micro drivers," Policy Research Working Paper Series 6611, The World Bank.
    2. McAleer, Michael & da Veiga, Bernardo & Hoti, Suhejla, 2011. "Value-at-Risk for country risk ratings," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 81(7), pages 1454-1463.
    3. Chen, Hao & Liao, Hua & Tang, Bao-Jun & Wei, Yi-Ming, 2016. "Impacts of OPEC's political risk on the international crude oil prices: An empirical analysis based on the SVAR models," Energy Economics, Elsevier, vol. 57(C), pages 42-49.
    4. Barbara Meller, 2013. "The two-sided effect of financial globalization on output volatility," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 149(3), pages 477-504, September.
    5. Cruces, Juan J., 2006. "Statistical properties of country credit ratings," Emerging Markets Review, Elsevier, vol. 7(1), pages 27-51, March.
    6. Fratostiteanu, Cosmin & Tanasie, Anca, 2007. "The country risk for Romania," MPRA Paper 5857, University Library of Munich, Germany.
    7. Rod Tyers & Jane Golley, 2010. "China's Growth to 2030: The Roles of Demographic Change and Financial Reform," Review of Development Economics, Wiley Blackwell, vol. 14(s1), pages 592-610, August.
    8. Nath, Hiranya K., 2009. "Country Risk Analysis: A Survey of the Quantitative Methods," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 62(1), pages 69-94.
    9. Hoti, Suhejla, 2005. "Comparative analysis of risk ratings for the East European region," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 68(5), pages 449-462.
    10. Hoti, Suhejla, 2005. "Modelling country spillover effects in country risk ratings," Emerging Markets Review, Elsevier, vol. 6(4), pages 324-345, December.
    11. Suhejla Hoti & Michael McAleer & Laurent L. Pauwels, 2004. "Modelling Environmental Risk," IHEID Working Papers 08-2004, Economics Section, The Graduate Institute of International Studies.
    12. Marlene Grande & Aurora A. C. Teixeira, 2011. "Linking entry mode choices of MNCs with countries’ corruption. A review," OBEGEF Working Papers 008, OBEGEF - Observatório de Economia e Gestão de Fraude;OBEGEF Working Papers on Fraud and Corruption.
    13. Sun, Xiaolei & Li, Jianping & Tang, Ling & Wu, Dengsheng, 2012. "Identifying the risk-return tradeoff and exploring the dynamic risk exposure of country portfolio of the FSU's oil economies," Economic Modelling, Elsevier, vol. 29(6), pages 2494-2503.
    14. Rod Tyers & Jane Golley, 2006. "China's Growth to 2030: The Roles of Demographic Change and Investment Risk," ANU Working Papers in Economics and Econometrics 2006-461, Australian National University, College of Business and Economics, School of Economics.
    15. María Lorena Mari del Cristo & Marta Gómez-Puig, 2014. "Dollarization and the relationship between EMBI and fundamentals Latin American countries," Working Papers 14-05, Asociación Española de Economía y Finanzas Internacionales.
    16. Othmani, Abdelhafidh & Slimani, Slah & Bakari, Sayef, 2015. "Les Effets de la Corruption sur le Commerce Extérieur de la Tunisie : Une Approche du Modèle de Gravité Statique durant la Période 1999-2012," MPRA Paper 80894, University Library of Munich, Germany.
    17. Rod Tyers & Jane Golley, 2006. "China's Growth to 2030: The Roles of Demographic Change and Investment Premia," PGDA Working Papers 1206, Program on the Global Demography of Aging.
    18. Luís Francisco Aguiar-Conraria & Gulamhussen, Mohamed Azzim, 2006. "Foreign Direct Investment in Brazil and Home Country Risk," NIPE Working Papers 7/2006, NIPE - Universidade do Minho.
    19. Shareef, Riaz & Hoti, Suhejla, 2005. "Small island tourism economies and country risk ratings," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 68(5), pages 553-566.
    20. Lorena Mari del Cristo & Marta Gómez-Puig, 2014. "Dollarization and the relationship between EMBI and fundamentals in Latin American countries," Working Papers 2014-02, Universitat de Barcelona, UB Riskcenter.
    21. Othmani, Abdelhafidh & Slimani, Slah & Bakari, Sayef, 2015. "Les Effets de la Concurrence sur le Commerce Extérieur de la Tunisie : Une Approche du Modèle de Gravité Statique durant la Période 1999-2012
      [The Effects of Competition on Foreign Trade in Tunisia
      ," MPRA Paper 80885, University Library of Munich, Germany.
    22. Chopra, Parvesh K. & Kanji, Gopal K., 2010. "On Measuring Country Risk: A new System Modelling Approach - La misura del rischio paese: un nuovo approccio system modelling," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 63(4), pages 479-515.

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