Work

Geopolitical risk and external debt burden in low-income countries

Year: 2026

Type: article

Abstract: • •Geopolitical risk intensifies debt dependence in low- and lower-middle-income countries. • •GPR-driven FDI declines are partially offset by external debt. • •Reserves and sentiment (resource dependence and uncertainty) mitigate (amplify) debt reliance. We examine how geopolitical risk (GPR) shapes capital flows in low- and lower-middle-income countries (LLMICs). Higher GPR is associated with greater reliance on external debt, partly through reduced foreign direct investment. Higher reserves and positive sentiment mitigate the debt reliance, whereas resource dependence and uncertainty amplify it. Our findings clarify how GPR reallocates capital flows toward debt in LLMICs and highlight the role of policy buffers in strengthening financial resilience to geopolitical shocks.

Source: Finance research letters

DOI: 10.1016/j.frl.2026.109646

Authors: Fariha Jahan, Doojin Ryu

Institution: Sungkyunkwan University

Language: English

Topic: Global Financial Crisis and Policies

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: Peace, justice, and strong institutions

Open Access status: hybrid

Estimated APC paid: $3,730