The Geopolitical Determinants of Economic Growth, 1960-2019

Tianyu Fan

Papers from arXiv.org

Abstract: This paper establishes geopolitical relations as a first-order determinant of economic growth. We construct a novel event-based measure of bilateral geopolitical alignment by employing large language models with web search capabilities to analyze over 440,000 political events across 196 countries from 1960--2019. This comprehensive measure enables us to identify the precise timing and magnitude of geopolitical shifts within countries over time. Using local projections with country fixed effects, we find that a one-standard-deviation improvement in geopolitical relations increases GDP per capita by 9.6 log points over 25 years. These persistent effects operate through multiple reinforcing channels -- enhanced political stability, increased investment, expanded trade, and productivity gains. Across our sample, geopolitical factors generate GDP variations ranging from -35% to +30%, with developing nations facing particularly severe penalties from international isolation. Our findings reveal how geopolitical alignment shapes economic prosperity in an increasingly fragmented global economy.

Date: 2025-07, Revised 2025-07
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