How does sovereign credit rating affect foreign direct investment? Evidence from Belt and Road economies

This article examines foreign direct investment (FDI) flows from global investor economies to Belt and Road Initiative (BRI) recipient economies during 2010–2021 against the backdrop of rising global uncertainty, with a particular focus on the role of sovereign credit ratings as financial information intermediaries. The results show that upgrades in both investor-economy and recipient-economy sovereign credit ratings are significantly associated with higher bilateral FDI flows into BRI economies. The heterogeneity analysis reveals that the positive effect of recipient-economy rating improvements on FDI inflows is more pronounced when the investor economy is a BRI economy, a developing economy, or a global tax haven. In contrast, the promoting effect of investor-economy rating improvements on FDI outflows is more evident when the investor economy is a non-BRI economy, a developed economy, or a non-tax-haven economy. Mechanism results provide suggestive evidence that rating upgrades in recipient economies may strengthen FDI ‘pull’ effects by signalling improvements in the investment environment, whereas rating improvements in investor economies may support FDI ‘push’ effects by reflecting stronger outward investment capacity. Overall, the findings underscore the critical role of sovereign credit ratings as financial information intermediaries in cross-border capital allocation.