Determinants of market-assessed sovereign default risk: Macroeconomic fundamentals or global shocks?

Dooyeon Cho, Dong Eun Rhee

Research output: Contribution to journalArticlepeer-review

1 Citation (Scopus)


This paper investigates the macroeconomic fundamentals that international investors consider crucial when assessing a country's default risk. Using panel data for 41 countries over the period 2002–2019, we find that the macroeconomic determinants of a sovereign credit default swap (CDS) are heterogeneous across developed and developing economies after controlling for potential endogeneity. While international investors consider government budget balance and inflation as crucial elements in the evaluation of the CDS of developed economies, more stress is placed on economic growth and foreign reserves in the assessment of the creditworthiness of developing economies. Furthermore, we document that better institutional quality reduces the sovereign default risk in both developed and developing economies. However, global shocks appear to have a strong impact in developing economies. The results remain robust to various specifications.

Original languageEnglish
Pages (from-to)35-60
Number of pages26
JournalInternational Finance
Issue number1
Publication statusPublished - 2024 Apr 1

Bibliographical note

Publisher Copyright:
© 2023 John Wiley & Sons Ltd.


  • default risk
  • financial crises
  • macroeconomic fundamentals
  • sovereign default premium

ASJC Scopus subject areas

  • Geography, Planning and Development
  • Development
  • Finance


Dive into the research topics of 'Determinants of market-assessed sovereign default risk: Macroeconomic fundamentals or global shocks?'. Together they form a unique fingerprint.

Cite this