AN ANALYSIS OF COUNTRY RISK WHEN INTERNATIONAL CAPITAL MARKETS LEND TO DEVELOPING NATIONS
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In light o f the rapid growth in developing countries borrowing from the international capital market and recent indicators offinancial and economic instability, the impact of country risk on the amount of international borrowing (loans and bonds) ofsixteen developing countries is estimated. Based on a model of sovereign risk analysis, the results indicate that for the period 1992-94, variables indicating political risk (transfer risk), credit risk, and economic risk are significant. Both bivarite and multiple regression estimates are obtained and test for stability ofthe model is conducted. The use ofcountry risk ratings as independent variables ofthe model is an improvement ofthe earlier methodology based on external debt ratios.
Abstract
In light o f the rapid growth in developing countries borrowing from the international capital market and recent indicators offinancial and economic instability, the impact of country risk on the amount of international borrowing (loans and bonds) ofsixteen developing countries is estimated. Based on a model of sovereign risk analysis, the results indicate that for the period 1992-94, variables indicating political risk (transfer risk), credit risk, and economic risk are significant. Both bivarite and multiple regression estimates are obtained and test for stability ofthe model is conducted. The use ofcountry risk ratings as independent variables ofthe model is an improvement ofthe earlier methodology based on external debt ratios.