Sovereign debt cost and economic complexity

Jose Gomez-Gonzalez, Jorge Uribe and Oscar Valencia ()

Journal of International Financial Markets, Institutions and Money, 2025, vol. 99, issue C

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.

Keywords: Convenience yields; Double-machine-learning; Government debt; Sovereign debt cost; XGBoost; Yield curve (search for similar items in EconPapers)
JEL-codes: F34 G12 G15 H63 O40 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:99:y:2025:i:c:s1042443125000113

DOI: 10.1016/j.intfin.2025.102121

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