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"Does economic complexity reduce the probability of a fiscal crisis?"

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  • José E. Gómez-González

    (Lehman College, City University of New York, New York, USA.)

  • Jorge M. Uribe

    (Universitat Oberta de Catalunya, Barcelona, Spain.)

  • Oscar M. Valencia

    (Fiscal Management Division, Inter-American Development Bank, Washington, USA.)

Abstract

Higher economic complexity of a country reduces the probability of suffering a fiscal crisis between 46% and 57%. Along with institutional factors, complexity is shown to be sufficient to describe the risk of facing episodes of fiscal distress. On the contrary, the role of variables frequently emphasized by the literature and policy markets, such as the debt-output ratio, real growth, inflation, terms of trade or fiscal balance, is very modest or insignificant. Development strategies that aim for greater economic complexity also promise to reduce countries’ fiscal vulnerability.

Suggested Citation

  • José E. Gómez-González & Jorge M. Uribe & Oscar M. Valencia, 2022. ""Does economic complexity reduce the probability of a fiscal crisis?"," IREA Working Papers 202218, University of Barcelona, Research Institute of Applied Economics, revised Nov 2022.
    • Handle: RePEc:ira:wpaper:202218
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    5. Gomez-Gonzalez, Jose E. & Uribe, Jorge M. & Valencia, Oscar, 2024. "Sovereign Risk and Economic Complexity," IDB Publications (Working Papers) 13393, Inter-American Development Bank.
    6. Gomez-Gonzalez, Jose E. & Uribe, Jorge M. & Valencia, Oscar, 2024. "Asymmetric Sovereign Risk: Implications for Climate Change Preparation," IDB Publications (Working Papers) 13447, Inter-American Development Bank.
    7. Goran Hristovski & Gjorgji Gockov & Viktor Stojkoski, 2024. "Multidimensional Economic Complexity and Fiscal Crises," Papers 2411.02027, arXiv.org.
    8. Giraldo, Carlos & Giraldo, Iader & Gomez-Gonzalez, Jose E. & Uribe, Jorge M., 2024. "Term Spread Spillovers to Latin America and Emergence of the ‘Twin Ds’," Documentos de trabajo 21169, FLAR.
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    More about this item

    Keywords

    Debt-sustainability; Sovereign-crises; Fiscal-revenues; Duration analysis; Debt-to-GDP ratio. JEL classification: E02; E44; E62; F34.;
    All these keywords.

    JEL classification:

    • E - Macroeconomics and Monetary Economics

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