Divided We Fall: Differential Exposure to Geopolitical Fragmentation in Trade

Divided We Fall: Differential Exposure to Geopolitical Fragmentation in Trade
READ MORE...
Volume/Issue: Volume 2023 Issue 270
Publication date: December 2023
ISBN: 9798400262302
$20.00
Add to Cart by clicking price of the language and format you'd like to purchase
Available Languages and Formats
paperback else
pdf else
epub else
English
Prices in red indicate formats that are not yet available but are forthcoming.
Topics covered in this book

This title contains information about the following subjects. Click on a subject if you would like to see other titles with the same subjects.

Exports and Imports , Economics- Macroeconomics , Economics / General , 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

Summary

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.