Determinants of Investment Grade Status in Emerging Markets
IMF Working Papers, May 1, 2010
Source details
- Canonical URL
- Determinants of Investment Grade Status in Emerging Markets
Other formats
Bibliographic details
- Authors: Laura Jaramillo
- Published: May 1, 2010
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781455200764.001
Summary
- Emerging market countries seek investment grade status to lower financing costs for the sovereign, expand the pool of potential investors to institutional investors, and allow corporates the possibility of reducing their borrowing costs.
- Using a random effects binomial logit model on a sample of 48 emerging markets, the paper finds that, to a large extent, investment grade rating assignments can be explained by a handful of variables.
- The results also suggest that efforts by emerging markets to increase the likelihood of an upgrade should focus on debt indicators rather than the other key determinants of investment grade status.
Methodology
- Model: random effects binomial logit model.
- Sample: 48 emerging markets.
Key findings and statistics
- Investment grade rating assignments can largely be explained by a handful of variables (as estimated by the random effects binomial logit model applied to the sample of 48 emerging markets).
- Policy focus implication: increasing the likelihood of an upgrade should concentrate on debt indicators rather than other key determinants of investment grade status.
Policy implications / Recommendations
- Emerging markets aiming for an upgrade to investment grade should prioritize reforms and policies that improve debt indicators.
- Reducing sovereign financing costs and expanding access to institutional investors are expected benefits from achieving investment grade status; corporates may also reduce borrowing costs as a result.
Content in this bundle
- Appendix Tables — _wp10117