The 1990s have witnessed pronounced boom-bust cycles in emergingmarkets lending, culminating in the Asian financial and currency crisis of 1997-8. By examining the links between sovereign credit ratings and dollar bond yield spreads over 1989-97, this paper aims at broad empirical content for judging whether the three leading rating agencies -Moody's, Standard & Poor's and Fitch IBCA -can intensify or attenuate boom-bust cycles in emerging-market lending. First, an event study exploring the market response for 30 trading days before and after rating announcements finds a significant impact of imminent upgrades and implemented downgrades for a combination of ratings by the three leading agencies, despite strong anticipation of rating events. Second, a Granger causality test, by correcting for joint determinants of ratings and yield spreads, finds that changes in sovereign ratings are mutually interdependent with changes in bond yields. These findings are based on many more observations than just the highly publicized crisis episodes in Mexico and Asia. They imply that sovereign ratings have the potential to moderate euphoria among investors on emerging-market bonds, but that the rating agencies have failed to exploit that potential over the past decade.

As a result of the Asian crisis, both the virtues of domestic savings and the risks of foreign savings have been emphasized in the debate on development finance. In particular, East Asia, with its enviable saving rates, it has been argued by economists such as Joe Stiglitz and Jagdish Bhagwati, does not need foreign funds for investment and growth. This paper explores the benefits of private capital inflows by reviewing the analytical arguments advanced in the literature and by building fresh empirical evidence. Particular attention is given to the independent growth impact of the various broad categories of flows in the recipient emerging markets. The paper provides panel data analysis covering 44 countries over the period 1986-97; correcting for standard growth determinants, it measures the independent growth effect of foreign direct investment, portfolio equity investment, bond flows, as well as short-term and long-term bank lending. The findings suggest that developing countries should not solely rely on national savings, but rather should encourage foreign direct investment and portfolio equity inflows so as to stimulate long-term growth prospects.

The opinions expressed in this paper are those of the authors and do not necessarily reflect those of the OECD, the Development Centre or their member countries. * Policy Insights No. 19 is derived from the forthcoming study of the same name www.oecd.org/dev/publications/chindaf The Rise of China and IndiaWhat's in it for Africa? *

The international system is still governed by a normative framework designed mainly by OECD countries, especially with regard to soft‐law standards in the field of development co‐operation. However, the growing relevance of ‘Eastern donors’ is weakening its efficiency and raises the question of how compliance with these standards can be assured in a changing donor landscape. Despite efforts to integrate emerging countries into the traditional approach of the OECD Development Assistance Committee (DAC) to monitoring compliance through peer reviews, the aid architecture of the future might turn out to be a synthesis of established and new approaches.

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte.