A Study On The Relationship Between Sovereign Credit Ratings And FDI Of “One Belt One Road" Countries

The "One Belt One Road" Strategy(OBOR Strategy)have positive influences on the economy development of the countries along the route,opening and fusion of global economy,and facilitation of international trade and investment.Investors,such as multinational corporations,play the key role in the OBOR Strategy through Foreign Direct Investment(FDI).While they are sharing the benefit of this strategy,they are also facing severe challenges like sovereign credit risk and so on.The sovereign credit rating,which is the epitome of macro economy information of a sovereign country,can reduce the information asymmetry and transaction cost so that it is a useful tool for investors,especially for Chinese investors who lack of experience about overseas investment,to analyze and to monitor the risk of the host country.Therefore,a study on the relationship between sovereign credit rating and FDI of OBOR countries has the important theoretical and practical meaning.This dissertation contains of seven chapters.The introduction is the first,which consists of the background and meaning of this dissertation.literature review of sovereign credit rating,FDI and the relationship between them,outline,analytical methods,innovation points and inadequate.Chapter Ⅱ presents the theoretical basis,including the theories of relationship between sovereign credit rating and asymmetric information,of relationship between sovereign credit rating and FDI,and of FDI of developed and developing countries.Chapter Ⅲ is status analysis of "One Belt One Road" countries(OBOR countries)with four parts,including the sovereign credit rating trend,the sovereign credit rating adjusting frequency,FDI,and Chinese outward FDI(OFDI).In this chapter.OBOR countries are analyzed as three different groups according to overall,economic development level,and region respectively.Chapter Ⅳis the calculation and comparison of sovereign credit rating models.Contingent Claims Approach(CCA model)is revised.The CCA ratings of several countries of "One Belt One Road" are calculated by using CCA model.The international sovereign credit rating models,including Standard and Poor’s(S&P)and Moody’s,are introduced.At last,the advantages and drawbacks of CCA and international sovereign credit rating models are discussed.Chapter Ⅴ and Ⅵ are the empirical analysis part,in which Chapter V presents relationship of sovereign credit ratings and FDI of OBOR countries and Chapter Ⅵ makes a further step to analyze the relationship of sovereign credit ratings and Chinese OFDI of OBOR countries.In Chapter Ⅴ and Ⅵ,results of CCA and international sovereign credit rating models are compared at first,and then make a further analysis by using the international sovereign credit rating.The special issues of spatial correlation,heterogeneity of period,and lag of variables are also noted.In Chapter VII,main conclusions,policy implications,and research prospects of this dissertation are discussed.The five main findings of this dissertation can be summarized as followings.Firstly,the explanatory power of the CCA rating needs to be further testified.In the empirical analysis part,the CCA ratings shows a weaker explanatory power than the ratings of S&P or Moody’s.The empirical analysis result of CCA ratings is negative and that of S&P or Moody’s is positive,which is similar to the result of earlier studies.The reasons for the weakness of CCA rating are inherent defect due to its information deficiency,transition bias produced from the transition of CCA default rate to CCA rating by using S&P’s sovereign credit rating and cumulate default rate transition table,and inadequate observes of CCA rating.Because of few literature made empirical analysis on the CCA rating,the empirical result of CCA rating in this dissertation is mainly an exploratory discussion.Secondly,the relationship between sovereign credit rating and FDI of OBOR countries is significant.The empirical results of sovereign credit rating of S&P and Moody’s show that the rating of OBOR countries in general has positive relationship with FDI,and that the ratings of developed and developing countries have negative and positive effect on FDI separately.Comparatively speaking,FDI is more sensitive to the change of the rating of developed countries.The FDI is attracted by the factors of market size,resource export,labor cost,labor quality,and trade openness from both developed and developing countries,however FDI is more sensitive to the change of the factors of developed countries.Thirdly,the relationship between sovereign credit rating and FDI of OBOR countries is robust.In the special issues part,the robustness is checked from three aspects of spatial correlation,heterogeneity of period,and lag of variables.After considering the spatial correlation,the relationship is stable for the overall OBOR countries and the FDI of these countries has the spatial dependence,which means the FDI of surrounding countries of a country has a positive effect on the FDI of this country.From the aspect of period heterogeneity,the relationship is also stable before and after the financial crisis in 2008,and will become more significant after the crisis.When using the 1 year lag of independent variables,the relationship is stable.Fourthly,the relationship between sovereign credit rating and Chinese OFDI of OBOR countries is significant.The empirical results of sovereign credit rating of S&P and Moody’s show that the sovereign credit ratings of overall,developed,and developing OBOR countries have a negative relationship with Chinese OFDI.Comparatively speaking,Chinese OFDI is more sensitive to the change of the rating of developed countries.Chinese OFDI is more attracted by the factors of market size,labor cost,labor quality from developed countries,and by the factors of resource export and trade openness from developing countries,which reveals that the Chinese OFDI have different motivations on developed and developing countries separately.Finally,the relationship between sovereign credit rating and Chinese OFDI of OBOR countries is not robust to some degree.After considering the spatial correlation,although Chinese OFDI has the spatial dependence,the relationship becomes insignificant for the overall OBOR countries.From the aspect of period heterogeneity,the relationship for the overall and developed OBOR countries is insignificant positive before the financial crisis,and become significant negative after the crisis,which shows the relationship of sovereign credit rating and Chinese OFDI is unstable and can be changed by financial crisis.Although results above show the relationship is unstable,when using the 1 year lag of independent variables,the relationship is relatively stable.