The Geopolitical Infusion Effect on Productivity

Yao Wang, Hong Bao and Bo Meng

No 981, IDE Discussion Papers from Institute of Developing Economies, Japan External Trade Organization(JETRO)

Abstract: This paper investigates how geopolitical relations with the United States (U.S.)—the central power in the post–World War II international order—affect the total factor productivity (TFP) of other economies. Using a fixed-effects econometric framework covering 107 countries over the period 1954–2019, we identify a robust and systematic link between geopolitical proximity to the U.S. and higher national TFP levels. We term this relationship the “Geopolitical Infusion Effect.” Our empirical results show three main findings. First, closer geopolitical alignment with the U.S. is associated with higher TFP, reflecting the diffusion of political trust and economic integration benefits. Second, this effect is particularly pronounced in low-income economies, countries with strict capital controls, and several regions in Europe and Africa; it reached its peak during the era of “hyper-globalization” (the post–Cold War period through 2008). Third, mechanism analysis indicates that positive political relations primarily enhance TFP through three channels: (i) expansion of bilateral trade, especially exports to the U.S.; (ii) attraction of foreign direct investment inflows; and (iii) accelerated knowledge and technology diffusion. By integrating geopolitics into the analytical framework of productivity, this study demonstrates how the structure of international political power shapes long-run growth capacity via the infusion-type mechanisms of resource allocation efficiency and technological absorption capability.

Keywords: United; States|geopolitical; relation|total; factor; productivity|U.S.|hyper-globalization (search for similar items in EconPapers)
JEL-codes: F14 F50 F59 O43 O47 (search for similar items in EconPapers)
Date: 2025-10
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Published in IDE Discussion Paper = IDE Discussion Paper, No.981. 2025-10

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