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Global Fragmentation, Fiscal Policy, and Economic Growth: A Cross-country Analysis

Author

Listed:
  • Gazi Salah Uddin

    (Linkoping University & Norwegian University of Life Sciences.)

  • Anh H. Le

    (IMFS, Goethe University Frankfurt)

  • Naoki Yago

    (ICMA Centre, Henley Business School, University of Reading)

  • John Beirne

    (Asian Development Bank)

  • Donghyun PARK

    (The South East Asian Central Banks (SEACEN) Research and Training Centre)

Abstract

This paper studies the macroeconomic implications of geopolitical risks and the role of fiscal sustainability in mitigating them. Our empirical analysis exploits a comprehensive database covering 121 countries from 1985 to 2023. We find that, in countries without fiscal rules, geopolitical fragmentation leads to a persistent decline in output and a surge in the debt-to-GDP ratio. However, in countries with fiscal rules, both output and debt are stabilised in the medium- to long-run. Moreover, fiscal rules have a more pronounced effect in countries with high central bank independence, suggesting a novel monetary-fiscal complementarity. We further explore various dimensions of cross-country heterogeneity, including economic development, political institutions, and climate risks. Finally, fiscal rules promote inclusive growth by mitigating adverse distributional effects of geopolitical risks.

Suggested Citation

  • Gazi Salah Uddin & Anh H. Le & Naoki Yago & John Beirne & Donghyun PARK, "undated". "Global Fragmentation, Fiscal Policy, and Economic Growth: A Cross-country Analysis," Working Papers wp62, South East Asian Central Banks (SEACEN) Research and Training Centre, revised Feb 2026.
    • Handle: RePEc:sea:wpaper:wp62
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    File URL: https://www.seacen.org/publication-doc/WP03_2026_Final.pdf
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    Keywords

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    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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