Browsing by Author "Aligway, Ellji C."

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    Does climate change affect sovereign credit ratings? evidence from tropical and non-tropical countries
    (2022-06) Aligway, Ellji C.; Onggocan, Tony C.; Mendoza, Adrian R.
    This study investigates how climate change vulnerability and readiness affect the sovereign credit ratings of countries in tropical and non-tropical regions. The study explores the composite indices developed by the Notre Dame Global Adaptation Initiative (ND-GAIN) which measure a country’s overall susceptibility to climate change (i.e., vulnerability) and its capacity to adapt with the consequences of climate change (i.e., readiness). Using a panel dataset of 60 countries observed over the period 2011 to 2019, we estimate a baseline panel-fixed effects model to analyze the impact of climate change vulnerability and readiness on the sovereign credit ratings issued by Moody’s, Fitch, and Standard and Poor’s. The econometric results show that climate change vulnerability has no significant effect on sovereign credit ratings after controlling for readiness and other macroeconomic variables. On the other hand, climate change readiness has a positive and significant effect on sovereign creditworthiness. However, our results show that better climate change readiness benefits the sovereign credit ratings of non-tropical countries more than tropical countries. The results of the baseline panel-fixed effects regressions are robust when tested across various specifications using subsamples (i.e., tropical and non-tropical); across credit rating agencies (i.e., Fitch, Moody's, and S&P); and alternative econometric models (i.e., ordered probit). Overall, the econometric results suggest a vicious cycle where tropical countries end up with low sovereign creditworthiness due to the difficulty of getting ratings upgrade, which can be traced to low climate change readiness. This highlights the urgency for countries to start mainstreaming climate change factors in their future fiscal and financial planning and policymaking.