Diverging Government Debt in a Converging Business World : An Examination of the Government Liquidity Index

With government debt diverging among countries, it is essential for companies to be able to easily and accurately determine business opportunities across country borders. Liquidity of a country is important for it controls the available money left for businesses to operate within a country. Several tools including Country Liquidity Index (CLI) were developed by researchers to measure the liquidity level of countries. The current CLI model suffers from outliers, mainly in very large or very small countries and also it uses only three variables. This paper reexamines the development of the CLI by introducing size and cultural variables into the original model. The findings are that both size and the Hofstede cultural factors are significantly related to CLI. Including these additional factors eliminated the problem of outliers from the original model and improved the explanatory capability of the model by 6%. The revised Country Liquidity Index Model is now based on the five factors of: Corruption Perception Index, Hofstede's Long-Term Outlook, General Government Gross Debt as Percentage of GDP, GDP, and Hofstede's Masculinity versus Femininity factors. The revised CLI model and the revised liquidity ranking of the countries is a resource for businesses interested in global investment opportunities. The index rank orders countries based on their liquidity. Moreover, the Index quantifies which countries are properly managing their liquidity and which countries are overextended allowing global businesses to easily compare global opportunities