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Frontier Markets: Analyzing Drivers of Market Growth and Sovereign Risks

Author

Listed:
  • Younes Takki Chebihi

    (BSE - Bordeaux sciences économiques - UB - Université de Bordeaux - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

  • Naoya Kato
  • Maxwell Kushnir
  • Andreja Lenarcic
  • Yinhao Sun
  • Bilal Tabti

Abstract

Frontier Market (FM) status serves as a steppingstone for Low-Income Countries (LICs) aspiring to become Emerging Markets (EMs). Since the concept first emerged over three decades ago, FMs have gained substantial investment appeal, particularly after the 2008 Global Financial Crisis. At the same time, the recent series of global shocks starting with the COVID-19 pandemic highlighted the countries' persistent vulnerabilities. This paper seeks to deepen our understanding of FMs by offering new analysis on the determinants of frontier market status and, using a dynamic country sample, examining the factors that help LICs attain and lose FM status. It finds that building robust macroeconomic fundamentals and ensuring good governance are critical for becoming an FM. In addition, the paper identifies flexible exchange rates, substantial official reserve buffers, and relatively low public debt and deficit levels as key contributors to lessening the sensitivity of FMs' sovereign spreads to changes in global financial conditions.

Suggested Citation

  • Younes Takki Chebihi & Naoya Kato & Maxwell Kushnir & Andreja Lenarcic & Yinhao Sun & Bilal Tabti, 2026. "Frontier Markets: Analyzing Drivers of Market Growth and Sovereign Risks," Post-Print hal-05737919, HAL.
    • Handle: RePEc:hal:journl:hal-05737919
    DOI: 10.5089/9798229051774.001
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