Determinants of country creditworthiness : an empirical investigation, 1980-1989

Abstract

This empirical investigation aims to identify the economic factors that determine a country's creditworthiness. Published country risk ratings are used as direct creditworthy measurement and logit analysis is applied in the present work. The pooled data includes observations of 34 sample countries for the period from 1980 to 1989. Different from earlier country risk studies which have focused only on developing country's rescheduling cases, this research also pays attention to industrial countries in order to seek the common determinants for both LDCs and DCs. Five macroeconomic ratios have been found significant in affecting country creditworthiness. In addition, this work suggests that these five basic indicators have both progressive and joint effects on creditworthiness. That is, the empirical results show that quadratic model is better than the generally assumed linear model.