Working Paper: CEPR ID: DP16898
Authors: Eline Ten Bosch; Mathijs A. van Dijk; Dirk Schoenmaker
Abstract: We study the relation between a country's performance on the United Nations' Sustainable Development Goals (SDGs) and its sovereign bond spread. Using a novel country-level SDG measure for a global sample of countries, we find a significantly negative relation between SDG performance and credit default swap (CDS) spreads, while controlling for traditional macroeconomic factors. This effect is stronger for longer maturities, in line with the notion that the SDGs represent long-term objectives. The results are most consistent with perceived default risk driving this relation, rather than investor preferences. In sum, our initial evidence suggests that investing in the SDGs provides governments with financial benefits besides ecological and social welfare.
Keywords: sustainable development goals; sovereign credit default swaps; sovereign credit spreads; default risk; country sdg performance
JEL Codes: G11; G12; F34; H41; H62
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| SDG index (C43) | CDS spread (G19) |
| SDG index (C43) | CDS spread (10-year maturity) (E49) |
| SDG index (C43) | perceived default risk (G33) |
| Poor SDG performance (Y10) | heightened default risk (G33) |
| SDG index + negative fiscal balance projections (H68) | CDS spread (G19) |
| GDP per capita (O49) | CDS spread (G19) |
| Political risk (P26) | CDS spread (G19) |