Geoeconomic Fragmentation and the Role of Non-Aligned Countries

Andreas Baur, Florian Dorn, Clemens Fuest and Lisandra Flach
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Andreas Baur: ifo Institute and LMU Munich
Florian Dorn: ifo Institute and LMU Munich
Lisandra Flach: ifo Institute and LMU Munich

No 526, Rationality and Competition Discussion Paper Series from CRC TRR 190 Rationality and Competition

Abstract: We analyze how non-aligned countries affect welfare outcomes in scenarios of global trade fragmentation. Using a quantitative trade model covering 141 countries and 65 economic sectors, we simulate different scenarios of geoeconomic fragmentation. We find that major non-aligned countries benefit from their neutral position, with welfare gains of up to 0.7%. Their manufacturing sectors particularly benefit under incomplete fragmentation, experiencing value added gains of 2.5%, while agriculture and services face modest declines. These gains turn into significant losses if they join either the Western or Eastern trade bloc. Moreover, world welfare losses increase from -1.9% under incomplete fragmentation to -2.7% when non-aligned countries join the West and to -3.7% when they join the East. Our results highlight the strategic importance of non-aligned countries in mitigating the negative effects of global trade fragmentation.

Keywords: trade policy; gains from trade; global value chains; quantitative trade models; general equilibrium (search for similar items in EconPapers)
JEL-codes: F11 F13 F15 F17 F51 (search for similar items in EconPapers)
Date: 2025-02-11
New Economics Papers: this item is included in nep-int
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