diff --git a/country-explorer/src/hooks/useFavorites.ts b/country-explorer/src/hooks/useFavorites.ts
new file mode 100644
index 0000000..1064245
--- /dev/null
+++ b/country-explorer/src/hooks/useFavorites.ts
@@ -0,0 +1,31 @@
+import { useCallback, useState } from 'react';
+
+/**
+ * Tracks which countries the user has marked as favorites, identified by
+ * their stable country code (the alpha-3 code already used as `Country.code`
+ * everywhere else in the app).
+ *
+ * This only holds the in-memory React state — persisting favorites to
+ * localStorage is handled separately.
+ */
+export function useFavorites() {
+  const [favoriteCodes, setFavoriteCodes] = useState<string[]>([]);
+
+  const addFavorite = useCallback((code: string) => {
+    // Guard against duplicates instead of relying on callers to check first.
+    setFavoriteCodes((current) => (current.includes(code) ? current : [...current, code]));
+  }, []);
+
+  const removeFavorite = useCallback((code: string) => {
+    setFavoriteCodes((current) => current.filter((favoriteCode) => favoriteCode !== code));
+  }, []);
+
+  const isFavorite = useCallback((code: string) => favoriteCodes.includes(code), [favoriteCodes]);
+
+  return {
+    favoriteCodes,
+    addFavorite,
+    removeFavorite,
+    isFavorite,
+  };
+}