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Impacts of mineral resources and fossil fuels on sovereign credit ratings and sovereign borrowing costs: Evidence from cross-country panel data

By Nguyen Thi Phuong Hoa (VNP 23)

Supervisor: Prof. Elissaios Papyrakis

Dr. Le Thanh Loan

Abstract:

This research investigates the impacts of mineral resources and fossil fuels on sovereign credit ratings and sovereign borrowing costs. The panel data set consists of 110 countries from multiple sources over the period from 1998 to 2015. The study applies panel data regression analysis such as Fixed Effects as the main methodology. The empirical results imply that not every mineral resource and fossil fuel variables has a significant impact on sovereign ratings or government borrowing costs. Mineral rents per GDP is the only variable having positive impacts on credit ratings while gas rents, oil rents and total extractive activity have negative influences. The empirical regression on long-term government bond yields suggests that only oil rents influenced 10-year bond yields negatively and significantly. While mineral rents per GDP and total extractive activity per GDP positively affect on 1-year bond yields for high-income countries. The findings imply that rich-mineral resource and high-income countries have to pay higher interest rates for their short-term loans. Countries with higher oil rents per GDP tend to pay lower bond yields in the long-term.

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