AI in a Fragmenting World

Barry Eichengreen, George Cui, Asmaa A. El-Ganainy, Yevgeniya Koriyenko, Elyad Shojaei, Li Zeng and Shihangyin Zhang

No 35597, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We link two global trends—AI and geoeconomic fragmentation—asking how fragmentation affects the international diffusion of AI, the magnitude of gains, and their distribution across economies. We ask these questions in general but also with a focus on the MENAP economies. While the effects of AI are potentially far-reaching, the benefits are neither guaranteed nor even. Frontier AI innovation is concentrated in a small number of economies, while countries benefiting through supply-chain participation or AI adoption—with outcomes shaped by their position in global trade and production networks and their AI preparedness. Geoeconomic fragmentation slows AI diffusion and reshapes its distribution by raising trade costs, restricting technology and data flows, fragmenting digital services, and reducing cross-border investment and collaboration. Yet proactive policy choices can turn this dynamic: economies that position themselves as connectors—maintaining trade and technology links across multiple partners—can potentially capture diverted flows and outperform even the no-fragmentation benchmark. For the MENAP economies, diversified links with all major technology hubs can cushion the effects of fragmentation and provide a structural foundation to emerge as net beneficiaries of AI diffusion, but realizing that potential requires reducing AI-related trade costs, improving AI preparedness, and building local AI-related capacity.

JEL-codes: F14 F17 F47 O33 (search for similar items in EconPapers)
Date: 2026-08
Note: IFM
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