Sovereign Risk and Economic Complexity

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

No 13393, IDB Publications (Working Papers) from Inter-American Development Bank

Abstract: This paper investigates how a country's economic complexity influences its sovereign yield spread with respect to the United States. Notably, a one-unit increase in the Economic Complexity Index is associated with a reduction of about 87 basis points in the 10-year yield spread. However, this effect is largely non-significant for maturities under three years. This suggests that economic complexity affects not only the level of the sovereign yield spreads but also the curve slope. The first set of models utilizes advanced causal machine learning tools, while the second focuses on economic complexity's predictive power. Economic complexity ranks among the top three predictors, alongside inflation and institutional factors like the rule of law. The paper also discusses the potential mechanisms through which economic complexity reduces sovereign risk and emphasizes its role as a long-run determinant of productivity, output, and income stability, and the likelihood of fiscal crises.

Keywords: convenience yields; double-machine-learning; government debt; sovereign credit risk; XGBoost; yield curve (search for similar items in EconPapers)
JEL-codes: F34 G12 G15 H63 O40 (search for similar items in EconPapers)
Date: 2024-01
New Economics Papers: this item is included in nep-big
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://publications.iadb.org/publications/english ... nomic-Complexity.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 403 Forbidden

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:idb:brikps:13393

DOI: 10.18235/0005533

Access Statistics for this paper

More papers in IDB Publications (Working Papers) from Inter-American Development Bank Contact information at EDIRC.
Bibliographic data for series maintained by Felipe Herrera Library ().