Do Sovereign Credit Ratings Matter for Foreign Direct Investments?

39 Pages Posted: 7 Jul 2017 Last revised: 7 Aug 2017

See all articles by Peilin Cai

Peilin Cai

The University of Sydney, Business School, Discipline of Finance, Students

Quan Gan

The University of Sydney - Discipline of Finance; Financial Research Network (FIRN)

Suk-Joong Kim

The University of Sydney Business School

Date Written: July 5, 2017

Abstract

This paper examines the relationship between sovereign credit ratings and FDI flows from 31 OECD donor countries to 72 recipient (OECD and non-OECD) countries over the period of 1985-2012. There are three main findings in the paper. First, sovereign credit ratings of donor and recipient are important drivers of bilateral FDI flows. FDIs in general flow from low-rated donor countries to high-rated recipient countries. Second, an OECD recipient receives high FDI inflows when its credit rating is high, whereas a non-OECD recipient receives high FDI inflow when its credit rating is low. Third, countries have more FDI inflows when their geographic region has higher average credit rating compared to other regions.

Keywords: FDI, sovereign credit rating, regional effect

JEL Classification: F30, G15

Suggested Citation

Cai, Peilin and Gan, Quan and Kim, Suk-Joong, Do Sovereign Credit Ratings Matter for Foreign Direct Investments? (July 5, 2017). Available at SSRN: https://ssrn.com/abstract=2997573 or http://dx.doi.org/10.2139/ssrn.2997573

Peilin Cai

The University of Sydney, Business School, Discipline of Finance, Students ( email )

P.O. Box H58
Sydney, NSW 2006
Australia

Quan Gan

The University of Sydney - Discipline of Finance ( email )

Discipline of Finance
University of Sydney
Sydney, NSW 2006
Australia

HOME PAGE: http://sydney.edu.au/business/staff/quang

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Suk-Joong Kim (Contact Author)

The University of Sydney Business School ( email )

Cnr. of Codrington and Rose Streets
Sydney, NSW 2006
Australia
+61 2 9114 0940 (Phone)
+61 2 9351 6461 (Fax)

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