The Geopolitical Determinants of Economic Growth, 1960-2024
Tianyu Fan
Abstract
This paper shows that geopolitical relations are a first-order determinant of economic growth. We introduce a new event-based measure of bilateral geopolitical relations, using large language models to compile and classify 373,020 geopolitical events across 193 countries from 1960 to 2024. Exploiting within-country temporal variation with local projections, we find that a one-standard-deviation permanent improvement in geopolitical relations increases GDP per capita by approximately 10 percent over 25 years. These effects operate through domestic stability, investment, trade, and productivity. In accounting exercises, geopolitical factors account for GDP variations ranging from -30 to +30 percent across countries and time periods.