Geopolitical Conflict and Trade: Montesquieu Revisited

Jonas Adolph, Wilhelm Kohler and Gernot Müller

No 12311, CESifo Working Paper Series from CESifo

Abstract: We develop a simple model that jointly determines the level of trade and the extent of trade-disruption risk associated with geopolitical conflict. Any pair of countries is likely to settle into one of two steady states: (i) a low level of trade coupled with high trade-disruption risk, or (ii) a high level of trade coupled with low trade-disruption risk. Intermediate cases are unstable. Examining bilateral trade flows between 1966 and 2015, we find, first, that the extent of trade varies systematically with trade-disruption risk and, second, that trade between country pairs tends to converge over time toward these polar cases.

Keywords: sourcing; interstate conflict; trade disruption risk; global value chains; multiple equilibria (search for similar items in EconPapers)
JEL-codes: F13 F14 (search for similar items in EconPapers)
Date: 2025
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