Geoeconomic Fragmentation: What’s at Stake for the EU

By Chikako Baba, Ting Lan, Aiko Mineshima, Florian Misch, Magali Pinat, Asghar Shahmoradi, Jiaxiong Yao, Rachel van Elkan

November 30, 2023

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Chikako Baba, Ting Lan, Aiko Mineshima, Florian Misch, Magali Pinat, Asghar Shahmoradi, Jiaxiong Yao, and Rachel van Elkan. Geoeconomic Fragmentation: What’s at Stake for the EU, (USA: International Monetary Fund, 2023) accessed December 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Geoeconomic fragmentation (GEF) is becoming entrenched worldwide, and the European Union (EU) is not immune to its effects. This paper takes stock of GEF policies impinging on—and adopted by—the EU and considers how exposed the EU is through trade, financial and technological channels. Motivated by current policies adopted by other countries, the paper then simulates how various measures—raising costs of trade and technology transfer and fossil fuel prices, and imposition of sectoral subsidies—would affect the EU economy. Due to its high-degree of openness, the EU is found to be exposed to GEF through multiple channels, with simulated losses that differ significantly across scenarios. From a welfare perspective, this suggests the need for a cautious approach to GEF policies. The EU’s best defence against GEF is to strengthen the Single Market while advocating for a multilateral rules-based trading system.

Subject: Balance of payments, Comparative advantage, Economic sectors, Exports, Foreign direct investment, Fuel prices, International trade, Manufacturing, Prices

Keywords: Comparative advantage, Cross-border restrictions, Energy, EU economy, EU foreign direct investment linkage, EU integration, EU State aid, European Union, Exports, Foreign direct investment, Fuel prices, Geoeconomic fragmentation, Global, Innovation, Manufacturing, Multinational production, Single Market, Trade

Publication Details

Pages:

40
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2023/245
Stock No:

WPIEA2023245
ISBN:

9798400259098
ISSN:

1018-5941

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