Geopolitical Barriers to Globalization

Tianyu Fan, Mai Wo and Wei Xiang

Papers from arXiv.org

Abstract: We show that since the mid-1990s, the trade-promoting effects of tariff liberalization have been increasingly offset by deteriorating geopolitical alignment, slowing trade globalization after 2007. To quantify this barrier, we use large language models to compile 833,485 geopolitical events across 193 countries, 1950--2024, and construct a bilateral geopolitical alignment score. Using local projections, we estimate that a one-standard-deviation permanent improvement in alignment raises bilateral trade by 22 percent in the long run. In an Armington framework, tariff reductions raised 2021 global trade by about 7.5 percent, while geopolitical deterioration reduced it by about 5.3 percent, with uneven welfare effects.

Date: 2025-09, Revised 2026-04
New Economics Papers: this item is included in nep-his, nep-int and nep-pol
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