IMF Working Papers

Changing Global Linkages: A New Cold War?

By Gita Gopinath, Pierre-Olivier Gourinchas, Andrea F Presbitero, Petia Topalova

April 5, 2024

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Format: Chicago

Gita Gopinath, Pierre-Olivier Gourinchas, Andrea F Presbitero, and Petia Topalova. "Changing Global Linkages: A New Cold War?", IMF Working Papers 2024, 076 (2024), accessed December 21, 2024, https://doi.org/10.5089/9798400272745.001

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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

Global linkages are changing amidst elevated geopolitical tensions and a surge in policies directed at increasing supply chain resilience and national security. Using granular bilateral data, this paper provides new evidence of trade and investment fragmentation along geopolitical lines since Russia’s invasion of Ukraine, and compares it to the historical experience of the early years of the Cold War. Gravity model estimates point to significant declines in trade and FDI flows between countries in geopolitically distant blocs since the onset of the war in Ukraine, relative to flows between countries in the same bloc (roughly 12% and 20%, respectively). While the extent of fragmentation is still relatively small and we do not know how longlasting it will be, the decoupling between the rival geopolitical blocs during the Cold War suggests it could worsen considerably should geopolitical tensions persist and trade restrictive policies intensify. Different from the early years of the Cold War, a set of nonaligned ‘connector’ countries are rapidly gaining importance and serving as a bridge between blocs. The emergence of connectors has likely brought resilience to global trade and activity, but does not necessarily increase diversification, strengthen supply chains, or lessen strategic dependence.

Subject: Balance of payments, Foreign direct investment, Imports, International trade, Trade agreements, Trade balance, Trade policy

Keywords: Foreign direct investment, Fragmentation, Geoeconomics, Global, Imports, Nonaligned connector, Restrictive policy, Supply chain resilience, Surge in policy, Trade, Trade agreements, Trade balance, Trade policy, Years of the Cold War

Publication Details

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