An analysis of Granger causality between sovereign credit rating and economic growth in Sub-Saharan Africa

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Interest in the relationship between credit rating and economic growth is growing as emerging economies increasingly integrate into international financial markets. Without credit ratings, developing economies would not have been able to successfully issue their sovereign bonds to support economic growth. Therefore, this paper examines a causality relationship between Standard & Poor’s long-term foreign currency sovereign credit ratings and economic growth in 19 Sub-Saharan countries over the period from 2003 to 2018. The results of the Granger causality tests show a unidirectional causality from sovereign credit ratings to economic growth, not vice versa. This implies that economic growth is not significant in determining sovereign credit ratings. It can thus be concluded from these findings that sovereign credit ratings are proactive actions by rating agencies that are relevant in determining future economic growth. Thus, investors benefit from utilizing credit ratings to prevent inherent information asymmetry in fundamental economic factors. Therefore, it is important for policy makers to pay attention to sovereign credit ratings when formulating macroeconomic policies.

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    • Figure 1. Responses to Cholesky’s one S.D. impulse responses
    • Table 1. Panel unit root test results
    • Table 2. Lag order selection criteria
    • Table 3. VAR model estimates
    • Table 4. Pairwise Granger causality test results
    • Table 5. VAR residual normality test for standardized residuals
    • Table 6. VAR residual heteroskedasticity test results
    • Data curation
      Misheck Mutize, Virimai V. Mugobo
    • Conceptualization
      Misheck Mutize, Virimai V. Mugobo
    • Formal Analysis
      Misheck Mutize, Virimai V. Mugobo
    • Funding acquisition
      Misheck Mutize, Virimai V. Mugobo
    • Investigation
      Misheck Mutize, Virimai V. Mugobo
    • Methodology
      Misheck Mutize, Virimai V. Mugobo
    • Project administration
      Misheck Mutize, Virimai V. Mugobo
    • Resources
      Misheck Mutize, Virimai V. Mugobo
    • Software
      Misheck Mutize, Virimai V. Mugobo
    • Supervision
      Misheck Mutize, Virimai V. Mugobo
    • Validation
      Misheck Mutize, Virimai V. Mugobo
    • Visualization
      Misheck Mutize, Virimai V. Mugobo
    • Writing – original draft
      Misheck Mutize, Virimai V. Mugobo
    • Writing – review & editing
      Misheck Mutize, Virimai V. Mugobo