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Geopolitical Barriers to Globalization

Tianyu Fan, Mai Wo, Wei Xiang

Abstract

We show that, since the mid-1990s, the trade-promoting effects of tariff liberalization have been increasingly offset by deteriorating geopolitical relations, stalling trade globalization after 2007. To quantify this barrier, we compile a database of 833,485 geopolitical events across 193 countries from 1950 to 2024 using large language models and construct a bilateral geopolitical alignment index. Local projections estimate that a one-standard-deviation permanent improvement in alignment raises bilateral trade by 20 percent in the long run. From 1995 to 2021, tariff reductions added 9.5 percentage points to trade growth, while geopolitical deterioration subtracted 6.8 percentage points and produced more uneven welfare effects.

Geopolitical Barriers to Globalization

Abstract

We show that, since the mid-1990s, the trade-promoting effects of tariff liberalization have been increasingly offset by deteriorating geopolitical relations, stalling trade globalization after 2007. To quantify this barrier, we compile a database of 833,485 geopolitical events across 193 countries from 1950 to 2024 using large language models and construct a bilateral geopolitical alignment index. Local projections estimate that a one-standard-deviation permanent improvement in alignment raises bilateral trade by 20 percent in the long run. From 1995 to 2021, tariff reductions added 9.5 percentage points to trade growth, while geopolitical deterioration subtracted 6.8 percentage points and produced more uneven welfare effects.

Paper Structure

This paper contains 108 sections, 30 equations, 45 figures, 19 tables.

Table of Contents

  1. Introduction
  2. Literature
  3. Roadmap
  4. Measuring Global Geopolitical Alignment
  5. Step 1: Event Database Construction
  6. Step 2: Mapping Events into Scores
  7. Step 3: Aggregating Events into Bilateral Relationship Scores
  8. Construction of Geopolitical Scores.
  9. Case Study: United States and China
  10. Bilateral and Multilateral Dimensions of Geopolitical Alignment
  11. UNGA Voting and Multilateral Positioning
  12. Irreducibly Bilateral Variation
  13. Geopolitical Alignment and Trade Patterns
  14. Case Studies: Geopolitics and Trade Dynamics
  15. Cross-Dyad Correlation
  16. ...and 93 more sections

Figures (45)

  • Figure 1: Aggregate Trade Shares, Tariffs, and Geopolitical Relations
  • Figure 2: Geopolitical Scores Between the United States and China, 1950--2024
  • Figure 3: Bilateral and Multilateral Dimensions of Geopolitical Alignment
  • Figure 4: Geopolitics and Trade: Selected Bilateral Relationships
  • Figure 5: Geopolitical Alignment and Trade Intensity: Major-Economy Dyads
  • ...and 40 more figures