Measuring Geopolitical Risk

Dario Caldara and Matteo Iacoviello

American Economic Review, 2022, vol. 112, issue 4, 1194-1225

Abstract: We present a news-based measure of adverse geopolitical events and associated risks. The geopolitical risk (GPR) index spikes around the two world wars, at the beginning of the Korean War, during the Cuban Missile Crisis, and after 9/11. Higher geopolitical risk foreshadows lower investment and employment and is associated with higher disaster probability and larger downside risks. The adverse consequences of the GPR index are driven by both the threat and the realization of adverse geopolitical events. We complement our aggregate measures with industry- and firm-level indicators of geopolitical risk. Investment drops more in industries that are exposed to aggregate geopolitical risk. Higher firm-level geopolitical risk is associated with lower firm-level investment.

JEL-codes: C43 E32 F51 F52 G31 H56 N40 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (599)

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Related works:
Working Paper: Measuring Geopolitical Risk (2022)
Working Paper: Measuring Geopolitical Risk (2018)
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DOI: 10.1257/aer.20191823

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