Assessing the role of international transmission channels of sovereign risk: a multidimensional spatial econometrics approach
International Journal of Emerging Markets
ISSN: 1746-8809
Article publication date: 23 May 2022
Issue publication date: 12 December 2023
Abstract
Purpose
This study is the first that aims to investigate international transmission channels of sovereign risk among G20 and explore its influential factors by applying the multidimensional SAR model.
Design/methodology/approach
Multiple spatial weight matrices can capture the contiguity of spatial units from various dimensions, which could be exploited to improve the precision of inference as well as prediction accuracy. To the best of the authors’ knowledge, this is the first study to investigate international transmission channels of sovereign risk among G20 and explore its influential factors by applying the multidimensional SAR model.
Findings
With network structure analysis, this study finds that they contain different information content from the perspective of graphical display, node strength and correlation. Developed and emerging countries all play major roles in trade connection, while only developed countries play major roles in financial linkage. Second, by applying the multidimensional SAR model, only the spatial autocorrelation coefficients for trade and financial linkages are significant during the full sample period, which is in sharp contrast to published studies using the SAR model with a single matrix. Third, the spillover channels that play major roles in various periods are different. Only trade channel plays a role during crisis periods and it is the most important. Fourth, the spatial correlation among countries greatly amplifies the shock’s impacts on one market. And spatial effect for developed countries is larger than those for emerging countries, while the mean spatial effect of a unit shock in the USA on emerging countries is slightly greater than that on developed countries.
Originality/value
Multiple spatial weight matrices can capture the contiguity of spatial units from various dimensions, which could be exploited to improve the precision of inference as well as prediction accuracy. To the best of the authors’ knowledge, this is the first study to investigate international transmission channels of sovereign risk among G20 and explore its influential factors by applying the multidimensional SAR model.
Keywords
Acknowledgements
Funding: This work was supported by the National Natural Science Foundation of China (No. 72171039, No. 71771042) and the Fundamental Research Funds for the Central Universities (N2206008).
Disclosure statement: No potential conflict of interest was reported by the authors.
Citation
Liu, P. and Huang, W.-Q. (2023), "Assessing the role of international transmission channels of sovereign risk: a multidimensional spatial econometrics approach", International Journal of Emerging Markets, Vol. 18 No. 12, pp. 6143-6164. https://doi.org/10.1108/IJOEM-11-2021-1764
Publisher
:Emerald Publishing Limited
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