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Sovereign debt cost and economic complexity

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  • Gomez-Gonzalez, Jose E.
  • Uribe, Jorge M.
  • Valencia, Oscar M.

Abstract

This paper investigates how a country’s economic complexity impacts its sovereign yield spread relative to the U.S. A one-unit increase in the Economic Complexity Index reduces the 10-year yield spread by about 61 basis points, though this effect is non-significant for maturities under three years, affecting the spread curve slope. Using causal machine learning and predictive models, economic complexity is a top predictor alongside inflation and institutional factors. The paper explores mechanisms through which economic complexity reduces sovereign risk, emphasizing its role in productivity, output, income stability, and the likelihood of fiscal crises.

Suggested Citation

  • Gomez-Gonzalez, Jose E. & Uribe, Jorge M. & Valencia, Oscar M., 2025. "Sovereign debt cost and economic complexity," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 99(C).
    • Handle: RePEc:eee:intfin:v:99:y:2025:i:c:s1042443125000113
    DOI: 10.1016/j.intfin.2025.102121
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    More about this item

    Keywords

    Convenience yields; Double-machine-learning; Government debt; Sovereign debt cost; XGBoost; Yield curve;
    All these keywords.

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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