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Sovereign Credit Ratings and Private Capital Flows to Low‐income Countries
Author(s) -
Lehmann Alexander
Publication year - 2004
Publication title -
african development review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.654
H-Index - 32
eISSN - 1467-8268
pISSN - 1017-6772
DOI - 10.1111/j.1017-6772.2004.00091.x
Subject(s) - private capital , capital (architecture) , economics , capital flows , sovereignty , monetary economics , business , financial system , market economy , macroeconomics , liberalization , foreign direct investment , archaeology , history , politics , political science , law
As low‐income countries obtain sovereign credit ratings in increasing numbers, this paper examines the potential effects on the composition and volume of private capital flows. Sovereign credit ratings are unlikely to overcome the informational asymmetries that impede private capital flows, and due to new international capital adequacy rules may actually raise the costs of capital for private borrowers. Nevertheless, they could help develop local and regional securities markets and assist mature private borrowers in hitherto unrated countries. Also, there may be beneficial disciplining effects on policy makers, and a growing differentiation between countries subject to an Africa‐wide risk premium.