Elections, opportunism, partisanship and sovereign ratings in developing countries

Paul M. Vaaler, Burkhard N. Schrage, Steven A. Block

Research output: Contribution to journalArticlepeer-review

49 Scopus citations

Abstract

We empirically examine whether and how opportunistic and partisan political business cycle ("PBC") considerations explain election-period decisions by credit rating agencies ("agencies") publishing developing country sovereign risk-ratings ("ratings"). Analyses of 391 agency ratings for 19 countries holding 39 presidential elections from 1987-2000, initially suggest that elections themselves prompt rating downgrades consistent with opportunistic PBC considerations, that incumbents are all likely to implement election-period policies detrimental to post-election creditworthiness. But more refined analyses, integrating both opportunistic and partisan PBC considerations in a unified framework, suggest that election-period agency downgrades (upgrades) are more likely as right-wing (left-wing) incumbents, become more vulnerable to ouster by challengers. Together, these results underscore the importance of integrating both opportunistic and partisan PBC considerations into any explanation of election-period risk assessments of agencies and, perhaps, other private, foreign-based financial actors important to the pricing and allocation of capital for lending and investment in the developing world.

Original languageEnglish (US)
Pages (from-to)154-170
Number of pages17
JournalReview of Development Economics
Volume10
Issue number1
DOIs
StatePublished - Feb 1 2006

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