Divided We Fall: Differential Exposure to Geopolitical Fragmentation in Trade

Shushanik Hakobyan, Sergii Meleshchuk and Robert Zymek

No 2023/270, IMF Working Papers from International Monetary Fund

Abstract: This paper assesses differences in countries’ macroeconomic exposure to trade fragmentation along geopolitical lines. Estimating structural gravity regressions for sector-level bilateral trade flows between 185 countries, we find that differences in individual countries’ geopolitical ties act as a barrier to trade, with the largest effects concentrated in a few sectors (notably, food and high-end manufacturing). Consequently, countries’ exposure via trade to geopolitical shifts varies with their market size, comparative advantage, and foreign policy alignments. Introducing our estimates into a dynamic many-country, many-sector quantitative trade model, we show that geoeconomic fragmentation—modelled as an increased sensitivity of trade costs to geopolitics and greater geopolitical polarization—generally leads to lower trade and incomes. However, emerging markets and developing economies (EMDEs) tend to see the largest impacts: real per-capita income losses for the median EMDE in Asia are 80 percent larger, and for the median EMDE in Africa 120 percent larger, than for the median advanced economy. This suggests that the costs of trade fragmentation could fall disproportionally on countries that can afford it the least.

Keywords: Geoeconomic fragmentation; trade barriers; gravity; emerging markets and developing economies; trade model; trade cost; trade fragmentation; foreign policy alignment; Plurilateral trade; Trade balance; Trade agreements; Income; Middle East and Central Asia; Sub-Saharan Africa; Asia and Pacific; Global; Africa (search for similar items in EconPapers)
Pages: 51
Date: 2023-12-22
New Economics Papers: this item is included in nep-int and nep-sea
References: Add references at CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=542842 (application/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:imf:imfwpa:2023/270

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Akshay Modi ().