Sovereign Risk Assessment in Changing Political Landscapes: Moderating Role of Financial Vulnerability
Abstract
This study aimsto investigate the impact of political regimes on sovereign risk with the moderating
role of financial vulnerability. To investigate the causal pathway of democratic advantage, the
study used ordered probit regression by considering a sample of 52 emerging economies
participating in BRI. The findings of the study reveal that democracies generally have lower credit
ratings and a higher likelihood of default compared to their autocratic counterparts and the
situation worsens when the level of debt crosses the threshold. Increased credit risk due to a high
debt burden significantly affects economic adjustments, ultimately hindering economic growth.
These findings contribute to a better understanding of policymakers and investors to manage credit
risk specifically in the context of BRI.
Keywords: Sovereign risk, financial vulnerability, debt sustainability, Belt & Road Initiative
(BRI)
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Copyright (c) 2023 Sobia Murtaza, Dr. Liaqat Ali
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.