Technology, Geopolitics, and Trade

Leo C.H. Lam () and Ana Maria Santacreu

No 2025-029, Working Papers from Federal Reserve Bank of St. Louis

Abstract: We study how geopolitical shocks reshape innovation through the contractual structure of cross-border technology adoption. Empirically, royalty flows are more sensitive than goods trade to geopolitical distance, especially where intellectual property enforcement is weak. We build a growth-trade model in which political risk raises breach hazards in licensing contracts. Firms reprice royalties but compliant adoption declines, and innovation incentives respond to the joint evolution of price and quantity. Quantitatively, fragmentation reallocates innovation and lowers the balanced-growth path growth rate. This mechanism has direct policy implications: under a consumption-only objective there is no role for export controls: Intervention arises only when governments value technological leadership in addition to efficiency.

Keywords: geopolitics; international trade; strategic rivalry; technology transfer (search for similar items in EconPapers)
JEL-codes: F63 O14 O33 O34 (search for similar items in EconPapers)
Pages: 74 pages
Date: 2025-10-21, Revised 2026-02-13
New Economics Papers: this item is included in nep-ifn and nep-int
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DOI: 10.20955/wp.2025.029

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