The impact of credit ratings on international investment: Evidence from an emerging market

This study examines the influence of sovereign credit ratings on international investments in emerging markets, focusing on Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI). Using data from 22 emerging economies spanning 1999 to 2019, we employ OLS and fixed-effects regression models to analyze how credit ratings affect investment flows and market volatility. The findings indicate that sovereign credit ratings significantly impact investor decisions, as these ratings serve as a key metric in assessing investment risk and potential. This research highlights the essential role of credit ratings in enhancing financial stability and promoting economic integration through foreign investments, with implications for growth and trade. The study provides novel insights for investors, policymakers, and rating agencies on the role of credit ratings in emerging market investments, contributing to a deeper understanding of their impact on global economic dynamics.