Tag Archives: credit rating agencies

Guest Post: The Link Between Perceived Corruption and Sovereign Risk Ratings

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Today’s guest post is from Roberto de Michele and Francesco De Simone, of the Inter-American Development Bank and Ugo Panizza of the Graduate Institute of International and Development Studies in Geneva.

A year ago, at a seminar at the Inter-American Development Bank (IDB), a representative from one of the major private credit rating agencies got everyone’s attention with a single slide. That slide showed a strong positive correlation between corruption perception indicators and sovereign risk ratings. The simple yet compelling message: corruption, or at least its perception, negatively affects a country’s perceived credit risk, in turn may raise the country’s borrowing cost.

What are we to make of this correlation? Does it indeed indicate a causal connection between corruption and high borrowing costs? If so, what are the implications for policymakers? Although there was some discussion of this issue in the academic literature a decade ago, the subject had not received much attention. Intrigued by this simple correlation, the IDB Transparency Fund sponsored a study of this topic, for which one of us (Ugo Panizza) served as principal investigator. That study, published last October, is available in English and Spanish on the IDB website. The main findings were as follows: Continue reading →

Corruption and the Revolving Door: Recent Discussions and Further Reflections

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So-called “revolving doors” between government and the private sector raise the specter of potential corruption (if not in the strict legal sense, then in the broader sense), and some anticorruption advocates have called for much more aggressive restrictions on former government officials’ ability to work for the sectors they used to regulate. (See, for example, here, here, and here.) Though the concerns are legitimate, I argued in a post a little while back that the issue is much more complex: many of the concerns about the harms of the revolving door may be overblown, and revolving doors might in some cases have beneficial effects.

I thought I’d revisit the issue in light of two very interesting recent contributions on this topic: a blog post last week by Transparency International Programme Manager Dieter Zinnbauer on the pros and cons of the revolving door (along with a companion post on measurement issues), and an article by Wharton School Professor David Zaring. Mr. Zinnbauer concludes that the weight of the evidence suggests that the revolving door is indeed a serious problem, and that for the most part the costs outweigh the benefits; Professor Zaring reaches more or less the opposite conclusion.

Although I think the first half of Mr. Zinnbauer’s post is an excellent, succinct, evenhanded summary of the main issues, I respectfully disagree with the inferences that he draws from the existing evidence. That’s not to say that his conclusions are wrong, or that revolving doors are nothing to worry about. But when Mr. Zinnbauer says that “a much larger body of new evidence comes down quite distinctively on the negative impact of the revolving door,” I think he’s overstating his case. Here’s why: Continue reading →