Spatial Analysis of Sovereign Risks : The Case of Frontier Markets

This paper considers spatial linkages of bilateral trade, financial correlation, and bilateral distance to study the macroeconomic determinants of sovereign risk for frontier markets. Furthermore, to evaluate the extent to which countries' economic and geographical relations affect their credit default swaps (CDS) market. It employs the recent model of the dynamic spatial Durbin with the interactive fixed-effects (IFE) model proposed by Shi & Lee (2017). All considered models produce a consistent result and confirms the existence of spillover effects that stems from the movement of the explanatory variables towards the CDS premium of itself and neighboring countries