Technology, Geopolitics, and Trade

Leo C.H. Lam () and Ana Maria Santacreu

No 2025-029, Working Papers from Federal Reserve Bank of St. Louis

Abstract: We study how geopolitical fragmentation shapes cross-border technology licensing and innovation incentives. We show that bilateral royalty flows vary with geopolitical distance differently from goods trade, and that this relationship depends on intellectual property enforcement. To interpret these facts, we develop a growth-trade model in which geopolitical risk weakens licensing enforceability when intellectual property rights are poorly protected. Royalty payments reflect both technology adoption and licensing prices: weaker enforcement can reduce diffusion while inducing firms to reprice contracts. Reduced market size lowers returns to frontier technologies, whereas repricing can redirect innovation toward the technological leader, generating asymmetric welfare effects.

Keywords: geopolitics; international trade; strategic rivalry; technology transfer (search for similar items in EconPapers)
JEL-codes: F63 O14 O33 O34 (search for similar items in EconPapers)
Pages: 69 pages
Date: 2025-10-21, Revised 2026-07-09
New Economics Papers: this item is included in nep-ifn and nep-int
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DOI: 10.20955/wp.2025.029

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