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The determinants of sovereign risk premium in African countries

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  • Jane Mpapalika
  • Christopher Malikane

Abstract

This paper investigates the determinants of the sovereign risk premium in African countries. We employ the dynamic fixed effects model to determine the key drivers of sovereign bond spreads. Country-specific effects are fixed and the inclusion of dummy variables using the BaiâPerron multiple structural break test is significant at a 5% level. For robustness, the time-series generalized method of moments (GMM) is used where the null hypothesis of the Sargan Test of over-identifying restrictions (OIR) and the ArellanoâBond Test of no autocorrelation are not rejected. This implies that the instruments used are valid and relevant. In addition, there is no autocorrelation in the error terms. Our results show that the exchange rate, Money supply/GDP (M2/GDP) ratio, and trade are insignificant. Furthermore, our findings indicate that public debt/GDP ratio, GDP growth, inflation rate, foreign exchange reserves, commodity price, and market sentiment are significant at a 5% and 10% level.

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  • Jane Mpapalika & Christopher Malikane, 2019. "The determinants of sovereign risk premium in African countries," 2019 Papers pmp2, Job Market Papers.
    • Handle: RePEc:jmp:jm2019:pmp2
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    5. Mwankemwa, Lusajo P. & Ndanshau, Michael O.A., 2021. "Asymmetric Effects of Fiscal Deficit on Monetary Policy Transmission in Tanzania," African Journal of Economic Review, African Journal of Economic Review, vol. 9(4), September.

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    JEL classification:

    • C - Mathematical and Quantitative Methods
    • E - Macroeconomics and Monetary Economics
    • F2 - International Economics - - International Factor Movements and International Business
    • F3 - International Economics - - International Finance
    • G - Financial Economics

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