FINANCIAL RESILIENCE UNDER CONSTRAINTS: EVIDENCE FROM A DUAL-RISK FRAMEWORK IN LOW- AND MIDDLE-INCOME ECONOMIES

This paper explores the drivers of financial resilience in low- and middle-income countries, with particular attention to the relative importance of saving behavior, financial constraints and exposure to financial risks. Based on a dual-risk framework, the analysis distinguishes between short-term financial stress and exposure to large, infrequent shocks to examine whether different forms of vulnerability are associated with financial resilience in different ways.
The empirical analysis uses cross-country data from the Global Findex Database (2024) and applies a cross-sectional OLS model to a sample of low- and middle-income economies. The objective is not to establish causal relationships, but to identify broad associative patterns consistent with the proposed conceptual framework. The results show that financial resilience is negatively and significantly associated with short-term financial stress, indicating that liquidity constraints play an important role in shaping the capacity of households to cope with unexpected financial shocks. In contrast, exposure to large financial shocks, proxied by concerns about medical expenses, is positively and significantly associated with financial resilience. This result should not be interpreted as evidence that risk exposure is beneficial in itself, but rather as a possible indication of adaptive precautionary behavior in contexts where major risks are more salient.
Saving behavior does not have a statistically significant association with financial resilience once financial constraints and risk exposure are accounted for. Similarly, the interaction between saving behavior and financial stress is not statistically significant. These findings suggest that, in constrained environments, financial resilience may depend less on saving behavior alone and more on the broader structure of liquidity constraints and risk exposure.
The paper contributes to the literature by providing exploratory cross-country evidence for the relevance of a dual-risk perspective on financial resilience. From a policy perspective, the results suggest that interventions aimed at strengthening financial resilience should move beyond a narrow focus on saving promotion and financial access, and should also address liquidity constraints, income instability and exposure to major financial shocks.