Impact of Culture on Sovereign Credit Ratings: Evidence from Developed and Developing Countries
Author: Saad Mahmood

The study seeks to find the impact of culture on sovereign credit rating through the channel of growth, utilizing panel data of 30 countries which were later classified into highly developed, developed and developing countries for the sake of comparison of cultural impact on these three categories of countries. Separate estimations were carried out to find determinants of sovereign default probability in case of highly developed, developed and developing countries other than the whole sample of countries. Twenty year data was gathered for sake of this study from 1994 till 2013. Random effect method or fixed effect method was used for estimations in all cases, selection of the better one was done by utilizing Hausman test for random effect vs fixed effect method. When cultural effects analyzed on sovereign default probability, the study finds cultural values to be negatively impacting and highly significant in determining sovereign risk for a sample of whole countries, developed countries and developing countries. In case of highly developed countries culture came out to be highly significant only if GDP per capita is dropped from the model. Moreover it was observed that the impact of culture diminishes as sample of countries with a higher and higher level of development is taken which means that culture being a social capital is more effective in reducing default probability of developing sovereigns than those which are having a relatively higher level of development and already have lower probability of default. Culture acts as a social capital and enhances economic performance of sovereigns which leads to higher credit ratings or lower sovereign default probabilities. Supervisor:- Dr. Shujaat Farooq

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Keywords : Cultural Impact, Developing Countries, Sovereign Credit Ratings
Supervisor: Shujaat Farooq

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