IDEAS home Printed from https://ideas.repec.org/a/ebl/ecbull/eb-18-00975.html
   My bibliography  Save this article

Economic complexity and sovereign risk premia

Author

Listed:
  • M. Utku Özmen

    (Central Bank of the Republic of Turkey)

Abstract

This paper analyses the impact of economic complexity, measured by the Economic Complexity Index (ECI), on sovereign risk premia. The results reveal that, after controlling for relevant macroeconomic variables, global factors and institutional indicators, economic complexity has a significantly negative impact on sovereign risk premia, captured by sovereign CDS spreads. This finding is valid both for advanced and emerging economies. An economy's ability to produce complex goods, which requires bringing in different sorts of know-how and capabilities together, might serve as an indicator of economy's resilience to shocks and thus, helps reduce the country risk.

Suggested Citation

  • M. Utku Özmen, 2019. "Economic complexity and sovereign risk premia," Economics Bulletin, AccessEcon, vol. 39(3), pages 1714-1726.
    • Handle: RePEc:ebl:ecbull:eb-18-00975
    as

    Download full text from publisher

    File URL: http://www.accessecon.com/Pubs/EB/2019/Volume39/EB-19-V39-I3-P162.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Mikhail Stolbov, 2017. "Determinants of sovereign credit risk: the case of Russia," Post-Communist Economies, Taylor & Francis Journals, vol. 29(1), pages 51-70, January.
    2. Amstad, Marlene & Remolona, Eli & Shek, Jimmy, 2016. "How do global investors differentiate between sovereign risks? The new normal versus the old," Journal of International Money and Finance, Elsevier, vol. 66(C), pages 32-48.
    3. Crifo, Patricia & Diaye, Marc-Arthur & Oueghlissi, Rim, 2017. "The effect of countries’ ESG ratings on their sovereign borrowing costs," The Quarterly Review of Economics and Finance, Elsevier, vol. 66(C), pages 13-20.
    4. Paolo Di Caro, 2017. "Testing and explaining economic resilience with an application to Italian regions," Papers in Regional Science, Wiley Blackwell, vol. 96(1), pages 93-113, March.
    5. Liu, Zhuoshi & Spencer, Peter, 2013. "Modelling sovereign credit spreads with international macro-factors: The case of Brazil 1998–2009," Journal of Banking & Finance, Elsevier, vol. 37(2), pages 241-256.
    6. Yicheol Han & Stephan J. Goetz, 2015. "The Economic Resilience of U.S. Counties during the Great Recession," The Review of Regional Studies, Southern Regional Science Association, vol. 45(2), pages 131-149, Fall.
    7. Hartmann, Dominik & Guevara, Miguel R. & Jara-Figueroa, Cristian & Aristarán, Manuel & Hidalgo, César A., 2017. "Linking Economic Complexity, Institutions, and Income Inequality," World Development, Elsevier, vol. 93(C), pages 75-93.
    8. Hitesh Doshi & Kris Jacobs & Virgilio Zurita, 2017. "Economic and Financial Determinants of Credit Risk Premiums in the Sovereign CDS Market," The Review of Asset Pricing Studies, Society for Financial Studies, vol. 7(1), pages 43-80.
    9. Beirne, John & Fratzscher, Marcel, 2013. "The pricing of sovereign risk and contagion during the European sovereign debt crisis," Journal of International Money and Finance, Elsevier, vol. 34(C), pages 60-82.
    10. Ron Martin & Peter Sunley & Ben Gardiner & Peter Tyler, 2016. "How Regions React to Recessions: Resilience and the Role of Economic Structure," Regional Studies, Taylor & Francis Journals, vol. 50(4), pages 561-585, April.
    11. Gillian Bristow & Adrian Healy, 2018. "Innovation and regional economic resilience: an exploratory analysis," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 60(2), pages 265-284, March.
    12. Balima, Wenéyam Hippolyte & Combes, Jean-Louis & Minea, Alexandru, 2017. "Sovereign debt risk in emerging market economies: Does inflation targeting adoption make any difference?," Journal of International Money and Finance, Elsevier, vol. 70(C), pages 360-377.
    13. Paulo Gala & Igor Rocha & Guilherme Magacho, 2018. "The structuralist revenge: economic complexity as an important dimension to evaluate growth and development," Brazilian Journal of Political Economy, Center of Political Economy, vol. 38(2), pages 219-236.
    14. Elias Giannakis & Adriana Bruggeman, 2017. "Determinants of regional resilience to economic crisis: a European perspective," European Planning Studies, Taylor & Francis Journals, vol. 25(8), pages 1394-1415, August.
    15. Emanuele Baldacci & Sanjeev Gupta & Amine Mati, 2011. "Political and Fiscal Risk Determinants of Sovereign Spreads in Emerging Markets," Review of Development Economics, Wiley Blackwell, vol. 15(2), pages 251-263, May.
    16. Hausmann, Ricardo & Hidalgo, Cesar, 2014. "The Atlas of Economic Complexity: Mapping Paths to Prosperity," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262525429, December.
    17. Jens Hilscher & Yves Nosbusch, 2010. "Determinants of Sovereign Risk: Macroeconomic Fundamentals and the Pricing of Sovereign Debt," Review of Finance, European Finance Association, vol. 14(2), pages 235-262.
    18. Francis A. Longstaff & Jun Pan & Lasse H. Pedersen & Kenneth J. Singleton, 2011. "How Sovereign Is Sovereign Credit Risk?," American Economic Journal: Macroeconomics, American Economic Association, vol. 3(2), pages 75-103, April.
    19. Ron Martin & Peter Sunley, 2015. "On the notion of regional economic resilience: conceptualization and explanation," Journal of Economic Geography, Oxford University Press, vol. 15(1), pages 1-42.
    20. Ricardo Hausmann & César Hidalgo, 2011. "The network structure of economic output," Journal of Economic Growth, Springer, vol. 16(4), pages 309-342, December.
    21. Erdem, Orhan & Varli, Yusuf, 2014. "Understanding the sovereign credit ratings of emerging markets," Emerging Markets Review, Elsevier, vol. 20(C), pages 42-57.
    22. Steve Brito & Mr. Nicolas E Magud & Mr. Sebastian Sosa, 2018. "Real Exchange Rates, Economic Complexity, and Investment," IMF Working Papers 2018/107, International Monetary Fund.
    23. Juan Camilo Galvis Ciro & Helder Ferreira de Mendonça, 2016. "Inflation targeting credibility and sovereign risk: evidence from Colombia," Applied Economics Letters, Taylor & Francis Journals, vol. 23(14), pages 984-990, September.
    24. Hasan Murat Ertugrul & Huseyin Ozturk, 2013. "The Drivers of Credit Default Swap Prices: Evidence from Selected Emerging Market Countries," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 49(S5), pages 228-249, November.
    25. Patrick Augustin & Hamid Boustanifar & Johannes Breckenfelder & Jan Schnitzler, 2018. "Sovereign to Corporate Risk Spillovers," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 50(5), pages 857-891, August.
    26. Ihsan U. Badshah, 2018. "Volatility Spillover from the Fear Index to Developed and Emerging Markets," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 54(1), pages 27-40, January.
    27. Stephan Dieckmann & Thomas Plank, 2012. "Default Risk of Advanced Economies: An Empirical Analysis of Credit Default Swaps during the Financial Crisis," Review of Finance, European Finance Association, vol. 16(4), pages 903-934.
    28. Jeanneret, Alexandre, 2018. "Sovereign credit spreads under good/bad governance," Journal of Banking & Finance, Elsevier, vol. 93(C), pages 230-246.
    29. Choi, Sangyup & Hashimoto, Yuko, 2018. "Does transparency pay? Evidence from IMF data transparency policy reforms and emerging market sovereign bond spreads," Journal of International Money and Finance, Elsevier, vol. 88(C), pages 171-190.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mikhail Stolbov, 2017. "Determinants of sovereign credit risk: the case of Russia," Post-Communist Economies, Taylor & Francis Journals, vol. 29(1), pages 51-70, January.
    2. Chang-Tai Lee & Jin-Li Hu & Ming-Hsin Kung, 2022. "Economic Resilience in the Early Stage of the COVID-19 Pandemic: An Across-Economy Comparison," Sustainability, MDPI, vol. 14(8), pages 1-25, April.
    3. Jeanneret, Alexandre, 2018. "Sovereign credit spreads under good/bad governance," Journal of Banking & Finance, Elsevier, vol. 93(C), pages 230-246.
    4. Linus Holtermann & Christian Hundt, 2018. "Hierarchically structured determinants and phase related patterns of economic resilience. An empirical case study for European regions," Working Papers on Innovation and Space 2018-02, Philipps University Marburg, Department of Geography.
    5. Jose E. Gomez-Gonzalez & Jorge M. Uribe & Oscar M. Valencia, 2023. "Sovereign Risk and Economic Complexity: Machine Learning Insights on Causality and Prediction," IREA Working Papers 202315, University of Barcelona, Research Institute of Applied Economics, revised Nov 2023.
    6. Nader Naifar, 2020. "What Explains the Sovereign Credit Default Swap Spreads Changes in the GCC Region?," JRFM, MDPI, vol. 13(10), pages 1-22, October.
    7. Hübel, Benjamin, 2022. "Do markets value ESG risks in sovereign credit curves?," The Quarterly Review of Economics and Finance, Elsevier, vol. 85(C), pages 134-148.
    8. Balland, Pierre-Alexandre & Broekel, Tom & Diodato, Dario & Giuliani, Elisa & Hausmann, Ricardo & O'Clery, Neave & Rigby, David, 2022. "Reprint of The new paradigm of economic complexity," Research Policy, Elsevier, vol. 51(8).
    9. Galariotis, Emilios C. & Makrichoriti, Panagiota & Spyrou, Spyros, 2016. "Sovereign CDS spread determinants and spill-over effects during financial crisis: A panel VAR approach," Journal of Financial Stability, Elsevier, vol. 26(C), pages 62-77.
    10. Fong, Tom Pak Wing & Li, Ka-Fai & Fu, John, 2018. "Accounting for sovereign tail risk in emerging economies: The role of global and domestic risk factors," Emerging Markets Review, Elsevier, vol. 34(C), pages 98-110.
    11. Paolo Rizzi & Paola Graziano & Antonio Dallara, 2018. "A capacity approach to territorial resilience: the case of European regions," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 60(2), pages 285-328, March.
    12. Gomez-Gonzalez, Jose E. & Uribe, Jorge M. & Valencia, Oscar, 2024. "Sovereign Risk and Economic Complexity," IDB Publications (Working Papers) 13393, Inter-American Development Bank.
    13. Elias Giannakis & Christos T. Papadas, 2021. "Spatial Connectivity and Regional Economic Resilience in Turbulent Times," Sustainability, MDPI, vol. 13(20), pages 1-12, October.
    14. Rios, Vicente & Gianmoena, Lisa, 2020. "The link between quality of government and regional resilience in Europe," Journal of Policy Modeling, Elsevier, vol. 42(5), pages 1064-1084.
    15. Liangang Li & Pingyu Zhang & Chengxin Wang, 2022. "What Affects the Economic Resilience of China’s Yellow River Basin Amid Economic Crisis—From the Perspective of Spatial Heterogeneity," IJERPH, MDPI, vol. 19(15), pages 1-20, July.
    16. Huyugüzel Kışla, Gül & Özlem Önder, A., 2018. "Spatial analysis of sovereign risks: The case of emerging markets," Finance Research Letters, Elsevier, vol. 26(C), pages 47-55.
    17. George J. XANTHOS & Evangelos N. DULUFAKIS, 2023. "Measurement Approaches Of Regional Economic Resilience: A Literature Review," Regional Science Inquiry, Hellenic Association of Regional Scientists, vol. 0(2), pages 47-59, June.
    18. Yang, Lu, 2023. "Oil price bubbles: The role of network centrality on idiosyncratic sovereign risk," Resources Policy, Elsevier, vol. 82(C).
    19. Wu, Eliza & Erdem, Magdalena & Kalotychou, Elena & Remolona, Eli, 2016. "The anatomy of sovereign risk contagion," Journal of International Money and Finance, Elsevier, vol. 69(C), pages 264-286.
    20. Blommestein, Hans & Eijffinger, Sylvester & Qian, Zongxin, 2016. "Regime-dependent determinants of Euro area sovereign CDS spreads," Journal of Financial Stability, Elsevier, vol. 22(C), pages 10-21.

    More about this item

    Keywords

    economic complexity; ECI; risk premia; CDS spreads; emerging economies;
    All these keywords.

    JEL classification:

    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ebl:ecbull:eb-18-00975. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: John P. Conley (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.