Impacts of sovereign ratings on the international capital flows

This paper investigates impacts of sovereign credit ratings on the international capital flows. To illustrate the relationship between sovereign credit ratings and international capital flows, a comprehensive data set of the selected 73 countries for the years between 1995-2010 is analyzed by using dynamic panel data techniques. In this study, the sovereign credit ratings provided by Standard&Poor?s are used. The international capital flow, here, includes three dependent variables, namely foreign direct investment, equity and bond flows, each of which is examined seperately. The results show that improvements in the sovereign credit ratings create positive effects on foreign direct investment and bond investment flows in the long run while it creates detrimental effects on equity flows.