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Do Sovereign Credit Ratings Matter for Foreign Direct Investment: Evidence from Sub-Sahara African Countries

Author

Listed:
  • Arogundade, Sodiq
  • Biyase, Mduduzi
  • Eita, Joel Hinaunye

Abstract

This study examines the impact of sovereign credit ratings (SCR) on foreign direct investment (FDI) inflow of 20 SSA countries. In achieving this, the study uses the fixed effect model, fixed effect instrumental variable regression, and the bootstrap panel granger causality test proposed by Emirmahmutoglu and Kose (2011). There are three main important findings from this empirical study: (1) sovereign credit ratings have a significant and positive impact on FDI inflows in the region; this result is robust to sub-regional analysis, the instrumental regression model and an alternative measure of credit rating, (2) the impact of SCR on FDI increases after the global financial crises (GFC), and (3) there is a unidirectional causality running from SCR to FDI in SSA. In increasing foreign investors' appetite, this study recommends that SSA countries get rated, and the ones rated should put in place appropriate policies to get better ratings.

Suggested Citation

  • Arogundade, Sodiq & Biyase, Mduduzi & Eita, Joel Hinaunye, 2022. "Do Sovereign Credit Ratings Matter for Foreign Direct Investment: Evidence from Sub-Sahara African Countries," MPRA Paper 115404, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:115404
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    References listed on IDEAS

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    More about this item

    Keywords

    Foreign direct investment; Sovereign credit ratings; Global financial crises Bootstrap panel Granger causality test; and Sub-Sahara African Countries;
    All these keywords.

    JEL classification:

    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • F0 - International Economics - - General
    • F30 - International Economics - - International Finance - - - General
    • G00 - Financial Economics - - General - - - General
    • G01 - Financial Economics - - General - - - Financial Crises

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