Geoeconomic Fragmentation and the Rewiring of Global Trade: Evidence from a New Multidimensional Index

Lucas Costa, Carlos Giraldo and Iader Giraldo
Additional contact information
Lucas Costa: Fondo Latinoamericano de Reservas - FLAR
Carlos Giraldo: Fondo Latinoamericano de Reservas - FLAR

Documentos de trabajo from FLAR

Abstract: In this paper, a multidimensional index of geoeconomic fragmentation (geofragmentation) is developed, and its effects on international trade are examined. Using sixteen indicators spanning trade, finance, mobility, and political dimensions for 98 countries from 2000–2024, we estimate a bloc-restricted dynamic factor model that extracts a global fragmentation factor and four dimension-specific factors without imposing arbitrary weights. We then embed the index in a gravity model estimated via Poisson pseudomaximum likelihood on annual bilateral trade flows from 2000 to 2023, classifying countries into U.S.-aligned, China-aligned, and nonaligned blocs based on UN General Assembly voting patterns. We find that geofragmentation has increased steadily since the global financial crisis and is now approaching its post-September 11 peak. It significantly reduces bilateral trade, with interbloc flows contracting more than intrabloc flows do. However, nonaligned countries increase trade with both blocs during high-fragmentation episodes, likely acting as connectors that partially offset decoupling. These findings suggest that fragmentation is reconfiguring, rather than reversing, global economic integration.

Keywords: Geoeconomic fragmentation; dynamic factor model; gravity model; geopolitical blocks (search for similar items in EconPapers)
JEL-codes: C33 F02 F14 F51 F60 (search for similar items in EconPapers)
Pages: 22
Date: 2026-08-20
New Economics Papers: this item is included in nep-mac
References: Add references at CitEc
Citations:

Downloads: (external link)
https://flar.com/wp-content/uploads/2026/08/Paper_ ... -Bilateral-Trade.pdf

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:col:000566:023576

Access Statistics for this paper

More papers in Documentos de trabajo from FLAR
Bibliographic data for series maintained by Fondo Latino Americano de Reservas ().