Divided We Fall: Differential Exposure to Geopolitical Fragmentation in Trade

By Shushanik Hakobyan, Sergii Meleshchuk, Robert Zymek

December 22, 2023

Preview Citation

Format: Chicago

Shushanik Hakobyan, Sergii Meleshchuk, and Robert Zymek. Divided We Fall: Differential Exposure to Geopolitical Fragmentation in Trade, (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

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.

Subject: Income, International trade, National accounts, Plurilateral trade, Trade agreements, Trade balance, Trade barriers

Keywords: Africa, Asia and Pacific, Emerging markets and developing economies, Foreign policy alignment, Geoeconomic fragmentation, Global, Gravity, Income, Middle East and Central Asia, Plurilateral trade, Sub-Saharan Africa, Trade agreements, Trade balance, Trade barriers, Trade cost, Trade fragmentation, Trade model

Publication Details

Pages:

51
Volume:

---
DOI:

---
Issue:

---
Series:

Working Paper No. 2023/270
Stock No:

WPIEA2023270
ISBN:

9798400262302
ISSN:

1018-5941

FACTSHEETS

RESOURCES

TOPICS

Flagship Publications

Other Publications

IMF reports and publications by country

Regional Offices

All News

See Also

For Journalists

Press Center

RESOURCES

FLAGSHIPS

KEY SERIES

IMF NOTES

IMF Working Papers