Economic freedom and sovereign credit ratings and default risk
Purpose – The purpose of this paper is to show that economic policy impacts sovereign debt risk in addition to economic performance. Design/methodology/approach – Regression analysis was employed to determine the factors that contribute to sovereign bond ratings and bond spreads for a sample of 93 countries from 2000 to 2006. Findings – After controlling for common factors like per capita gross domestic production, growth, and political regime, the results suggest that a two unit (or a 2.4 standard deviation) drop in the economic freedom index represents approximately a 50 percent higher cost of borrowing for a country. Originality/value – The paper contributes to the empirical literature on sovereign credit risk by identifying factors found to be the most significant in determining sovereign credit ratings and bond spreads.ent into account.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 2 (2010)
Issue (Month): 2 (June)
|Contact details of provider:|| Web page: http://www.emeraldinsight.com|
|Order Information:|| Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK|
Web: http://www.emeraldinsight.com/jfep.htm Email:
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jakob De Haan & Susanna Lundström & Jan-Egbert Sturm, 2006.
"Market-oriented institutions and policies and economic growth: A critical survey,"
Journal of Economic Surveys,
Wiley Blackwell, vol. 20(2), pages 157-191, 04.
- Jakob de Haan & Susanna Lundstroem & Jan-Egbert Sturm, 2005. "Market oriented institutions and policies and economic growth: A critical survey," TWI Research Paper Series 5, Thurgauer Wirtschaftsinstitut, Universität Konstanz.
- Gwartney, James & Lawson, Robert, 2003. "The concept and measurement of economic freedom," European Journal of Political Economy, Elsevier, vol. 19(3), pages 405-430, September.
- Kraeussl, Roman, 2003.
"Do Changes in Sovereign Credit Ratings Contribute to Financial Contagion in Emerging Market Crises?,"
CFS Working Paper Series
2003/22, Center for Financial Studies (CFS).
- Roman Kraeussl, . "Do Changes in Sovereign Credit Ratings Contribute to Financial Contagion in Emerging Market Crises?," Working Papers 0314, University of Crete, Department of Economics.
- Richard Cantor & Frank Packer, 1996.
"Determinants and impacts of sovereign credit ratings,"
9608, Federal Reserve Bank of New York.
- Richard Cantor & Frank Packer, 1996. "Determinants and impact of sovereign credit ratings," Economic Policy Review, Federal Reserve Bank of New York, issue Oct, pages 37-53.
- Marshall L. Stocker, 2005. "Equity Returns And Economic Freedom," Cato Journal, Cato Journal, Cato Institute, vol. 25(3), pages 583-594, Fall.
- Alexander W. Butler & Larry Fauver, 2006.
"Institutional Environment and Sovereign Credit Ratings,"
Financial Management Association International, vol. 35(3), pages 53-79, 09.
- Alexander W. Butler & Larry Fauver, 2006. "Institutional Environment and Sovereign Credit Ratings," Financial Management, Financial Management Association, vol. 35(3), Autumn.
- James D . Gwartney & Randall G . Holcombe & Robert A . Lawson, 2006. "Institutions and the Impact of Investment on Growth," Kyklos, Wiley Blackwell, vol. 59(2), pages 255-273, 05.
- Kaminsky, Graciela & Schmukler, Sergio, 2001.
"Emerging markets instability: do sovereign ratings affect country risk and stock returns?,"
Policy Research Working Paper Series
2678, The World Bank.
- Graciela Kaminsky & Sergio L. Schmukler, 2002. "Emerging Market Instability: Do Sovereign Ratings Affect Country Risk and Stock Returns?," World Bank Economic Review, World Bank Group, vol. 16(2), pages 171-195, August.
- Brooks, Robert & Faff, Robert W. & Hillier, David & Hillier, Joseph, 2004. "The national market impact of sovereign rating changes," Journal of Banking & Finance, Elsevier, vol. 28(1), pages 233-250, January.
- Berggren, Niclas, 2003. "The Benefits of Economic Freedom: A Survey," Ratio Working Papers 4, The Ratio Institute.
- Joshua Hall & Robert Lawson, 2009. "Economic Freedom and Peace," Atlantic Economic Journal, International Atlantic Economic Society, vol. 37(4), pages 445-446, December.
- Robert A. Lawson, 2006. "On Testing the Connection between Economic Freedom and Growth," Econ Journal Watch, Econ Journal Watch, vol. 3(3), pages 398-406, September.
When requesting a correction, please mention this item's handle: RePEc:eme:jfeppp:v:2:y:2010:i:2:p:149-162. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Virginia Chapman)
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 references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.