Measuring the effect of corruption on sovereign bond ratings

Research output: Contribution to journalArticlepeer-review

17 Scopus citations


Instrumenting for sovereign corruption, we find that Transparency International's Corruption Perceptions Index which 'ranges from 10 (highly clean) to 0 (highly corrupt)', is a significant predictor of the Standard and Poor's sovereign bond ratings ranging from 1 (Sovereign Default) to 22 (AAA) in panel data from 52 countries from 1993 to 2002. Corruption downgrades the creditworthiness of sovereign bonds by diverting loan proceeds from productive projects to less productive ones, if not to offshore accounts. In particular, a one point worsening of the corruption perception index leads to an estimated one-notch reduction out of 22 in the sovereign bond rating.

Original languageEnglish (US)
Pages (from-to)309-323
Number of pages15
JournalJournal of Economic Policy Reform
Issue number4
StatePublished - Dec 1 2007


  • Corruption
  • Creditworthiness
  • Sovereign bond rating

ASJC Scopus subject areas

  • Business and International Management
  • Economics, Econometrics and Finance(all)

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