DOES A FIRST INTERNATIONAL CREDIT RATING ATTRACT INVESTMENT? SYNTHETIC CONTROL EVIDENCE FROM A REGION PROHIBITED FROM MARKET BORROWING

Abstract

Local and regional governments typically obtain international credit ratings in order to access capital markets and raise debt financing. This article examines a setting in which that conventional explanation is ruled out by law and asks what economic rationale for obtaining a credit rating remains under such institutional conditions. Fergana Region, the second most populous region of Uzbekistan, is legally prohibited from raising market debt under national legislation. Nevertheless, the region holds two international credit ratings, both of which were solicited by the regional authorities and obtained on a fee-paid basis. Existing economic explanations for multiple credit ratings do not fully account for this case because the mechanisms of information production, rating shopping, and regulatory certification generally presuppose the existence of a traded security and portfolio creditors assessing its credit risk. The article therefore proposes an investorlegibility channel as the principal alternative explanation. Under this mechanism, a credit rating is interpreted not as a signal directed toward bond investors, but as a standardized and internationally recognized screening signal aimed at direct investors. The article subjects this channel to empirical testing. The treatment event is defined as Fergana Region’s first international credit rating, assigned by S&P Global Ratings on 10 September 2022. Because the treatment occurred at the regional level while territorial statistical authorities report the relevant indicators at the district level, the eligible districts of Fergana Region are treated as exposed units, while districts in other regions serve as donor units. A district-level panel was constructed using openly available data published under CC BY licences by 13 of Uzbekistan’s 14 territorial statistical authorities. The resulting panel comprises 1,192 spreadsheet files, 150,035 observations, and 286 region–district pairs covering the period 2009–2026, and is made openly available alongside the article. Using 2010–2021 as the pre-treatment period and 2022–2025 as the post-treatment period, the study applies the synthetic control method. The estimated post-treatment gap in the logarithm of total fixed-capital investment is −4.4% (56th out of 104 units, p = 0.538). For the share of foreign investment, the estimated gap is −2.80 percentage points (43rd out of 90 units, p = 0.478), while the estimated gap in the logarithm of the calculated volume of foreign investment is −38.7% (12th out of 52 units, p = 0.231).