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

Gazi Salah Uddin (), Anh H. Le (), Naoki Yago (), John Beirne and Donghyun Park ()
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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

Working Papers from 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.

Keywords: Fragmentation; Fiscal rule; Monetary-fiscal interaction; Economic growth (search for similar items in EconPapers)
JEL-codes: E40 E52 E62 O11 (search for similar items in EconPapers)
Date: 2026-02
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Persistent link: https://EconPapers.repec.org/RePEc:sea:wpaper:wp62

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