Are We Fragmented Yet? Measuring Geopolitical Fragmentation and Its Causal Effect

Jesus Fernandez-Villaverde, Tomohide Mineyama and Dongho Song

No 32638, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: After decades of rising global economic integration, the world economy is fragmenting. To measure this, we introduce a geopolitical fragmentation index based on a dynamic hierarchical factor model with time-varying parameters and stochastic volatility. We then use structural vector autoregressions and local projections to assess the causal effects of fragmentation. Increased fragmentation negatively impacts the global economy, with emerging economies suffering more than advanced ones. Notably, fragmentation has an immediate negative effect, while the benefits of reduced fragmentation unfold gradually. A sectoral analysis shows that industries closely tied to global markets are more adversely affected. Finally, we highlight significant differences in the effects of fragmentation across geopolitical blocs.

JEL-codes: C11 C31 E00 F01 F2 F4 F6 (search for similar items in EconPapers)
Date: 2024-06
New Economics Papers: this item is included in nep-int, nep-opm and nep-ure
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Working Paper: Are We Fragmented Yet? Measuring Geopolitical Fragmentation and Its Causal Effects (2024)
Working Paper: Are We Fragmented Yet? Measuring Geopolitical Fragmentation and Its Causal Effects (2024)
Working Paper: Are We Fragmented Yet? Measuring Geopolitical Fragmentation and Its Causal Effects (2024)
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