The Effect of Risk Rating Agencies Decisions on Economic Growth and Investment in a Developing Country: The Case of South Africa
Round 1
Reviewer 1 Report
The paper very well organized and provide to the scientific society knowledge about the effect of risk rating agencies decisions on economic growth and investment in a developing country: The case of South Africa. Authors use modern scientific literature on the topic. The arguments are argued in a good manner. The methodology is clear and conclusions well structured.
Minor points:
1.On page 3 there is a small unclearness regarding ratings and macroeconomic variables. Is it a new sentence? is it just the beginning of the paragraph but why it is not started from the big letter and not in Italic or Bold?
2.Also authors need to add aim of the research and research question. For literature analysis maybe authors can check some more last years research work 2018-2020.
3.The conclusions need to be strenght and link to the results of the research.
Author Response
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Reviewer 1
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1.On page 3 there is a small unclearness regarding ratings and macroeconomic variables. Is it a new sentence? is it just the beginning of the paragraph but why it is not started from the big letter and not in Italic or Bold? |
The sentence has been corrected on line 135 and 136. |
A few empirical studies have been conducted to investigate the link between sovereign credit ratings and macroeconomic variables. |
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2. Also authors need to add aim of the research and research question. For literature analysis maybe authors can check some more last year’s research work 2018-2020. |
The research question and aim of the research has been added on line 64-76.
The following recent sources were added:
Mutize and Nkhalamba (2020) line 139-144.
Slabbert et al., (2019) line 167-170.
Aras and Öztürk (2018) line 165-166.
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As such, because the literature has identified the determinants of risk rating agencies, the question is: how do changes in the risk rating of a country affect macroeconomic variables such as economic growth and investment (Research question)
The premise of this paper is thus to investigate the impact of risk rating agencies decisions on economic growth and investment in South Africa. In this paper, we argue that, even though numerous studies have identified the determinants of risk rating agencies, in other words, what causes risk rating agencies to change their risk ratings for countries, a hand full of studies have investigated how changes is a countries risk rating affects economic growth and investment. This paper therefore, bridges the gap in the literature by identifying how changes in risk rating affects macroeconomic variables such a s economic growth an investment. (Research aim). . |
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3. The conclusions need to be strenght and link to the results of the research |
The conclusions section has a number of recommendations from our econometric anaIysis, but we have added additional conclusions and recommendations at lines 474 488 |
I have added more content to the conclusions. |
Reviewer 2 Report
The paper attempts to put too much weight on the reports from the credit rating agencies. It attempts to show how credit rating agencies affect (and be affected) by GDP and FDI.
Unless the country heavily reliant on foreign investment and its impact on the overall economic performance, it is really far-fetched to put such unnecessary importance to the credit rating agencies' report.
To some extent, it is expected that credit agencies' report may influence FDI flow. But the empirical result doesn't support the claim reported in the paper. The impact of credit rating index is not significant in affecting FDI flow, but it is reported as if it is significant (see Tables 6 and 7).
Author Response
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Reviewer 2
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From the literature, it evident that researchers have focused on identifying what causes (determinants) credit rating agencies to make risk rating adjustments. However, very limited studies have shown what happens to economic variables once credit rating agencies change the rating of a country. Hence that is why the study uses the credit ratings provided by the three ratings agencies. |
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2. Unless the country heavily reliant on foreign investment and its impact on the overall economic performance, it is really far-fetched to put such unnecessary importance to the credit rating agencies' report. |
No change implemented |
No change implemented |
Indicating the importance of credit rating agencies is important. This is because, they provide vital signals to potential investors. Furthermore, an important component in financial monitoring that acts as a source of information for investment decisions is the provision of sovereign credit ratings. Furthermore, the literature has also shown that credit ratings are vital for stimulating investments and promoting economic growth (Boumparis, et al. 2017).
Therefore, we disagree that it is not far-fetched show the importance of credit ratings.
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3. To some extent, it is expected that credit agencies' report may influence FDI flow. But the empirical result doesn't support the claim reported in the paper. The impact of credit rating index is not significant in affecting FDI flow, but it is reported as if it is significant (see Tables 6 and 7). |
Additional theoretical context is provided that does not show bias to the results obtained. Line 10-20.
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Furthermore, the literature has also shown that the relationship between economic growth and FDI is not always straight forward, since the development level and income level of a country seems to also have a significant impact on the host countries’ response towards attracting FDI. The literature further postulates that there seems to be a threshold for a country’s income level, which has proven to be important, since country’s who surpass this threshold have seen a positive impact of FDI on growth, whilst country’s with an income level below the threshold experience a negative relationship between FDI and growth (Wan, 2010). Furthermore, Sunde (2016) further asserts that the outcomes and contributions of FDI are somewhat not straightforward because the effect of FDI depends on the FDI absorption ability of the host country and how this links with the host country’s policies. |
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Reviewer 3 Report
The Authors described effect of risk rating agencies decisions on economic growth in the South Africa perspective. They underlines regional economic barriers as slow economic growth, blackouts in electricity supply, fiscal deficits, and debt alongside the C-19 crisis. Credit ratings have evolved, making them key indicator , as many investors base on them/ A quantitative rstudy was followed using data from 26years. The Authors used the Autoregressive Distributed Lag (ARDL) model.
minor problem:
Lines 135: It seems some words are missing:
"ratings and macroeconomic variables. One of the earlier studies that focused on sovereign ratings and their determinants is the study by Cantor and Packer (1996), where a sample of 49 countries for the year 1995 was used."
Page 457: Data Availability Statement: Publicly available datasets were analyed in this study. This data can be found here: Please specify -Where???
Please remove that or check with editor: "The abstract is online so I don’t know if we have to declare that"
Author Response
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Reviewer 3 |
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1. Lines 135: It seems some words are missing: "ratings and macroeconomic variables. One of the earlier studies that focused on sovereign ratings and their determinants is the study by Cantor and Packer (1996), where a sample of 49 countries for the year 1995 was used."
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The sentence has been corrected in line 135 and 136. |
A few empirical studies have been conducted to investigate the link between sovereign credit ratings and macroeconomic variables. |
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2. Page 457: Data Availability Statement: Publicly available datasets were analyed in this study. This data can be found here: Please specify -Where??? |
Line 488 changed |
Line 261 and 262 indicate the sources as well as Table 1, see lines 580 and 597 for sources in reference list |
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3. Please remove that or check with editor: "The abstract is online so I don’t know if we have to declare that" |
Line 492 removed |
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