The Geopolitical Determinants of Economic Growth, 1960-2019

2025-07-07

AI Summary

This study investigates whether geopolitical relations constitute a key driver of economic growth and quantifies their long-run impact on GDP per capita. To address endogeneity and measurement challenges, we construct a novel bilateral geopolitical linkage index grounded in global political events—first integrating large language models with web search data to achieve high-precision, large-scale measurement of dynamic geopolitical ties. We employ local projection methods combined with country fixed-effects models for causal identification. Results indicate that a one-standard-deviation improvement in bilateral geopolitical relations raises GDP per capita by 9.6 log points over 25 years; the adverse effects of international isolation are especially pronounced for developing countries. By establishing a new empirical framework linking geopolitical dynamics to macroeconomic outcomes, this paper provides rigorous evidence on how non-traditional institutional factors shape long-run growth—offering both conceptual insights and a methodological blueprint for future research on informal institutions and development.

Technology Category

• Game Theory and Economic Paradigms: Equilibrium
• Natural Language Processing: Language Grounding & Multi-modal NLP
• Data Mining & Knowledge Management: Linked Open Data, Knowledge Graphs & KB Completion

Application Category

• Graph Algorithms and Modeling for the Web: Efficient manipulation of static and dynamic Web-related graphs
• Security and Privacy: Large-scale security measurements
• Web Mining and Content Analysis: Models for Web evolution

Abstract

This paper establishes geopolitical relations as a first-order determinant of economic growth. We construct a novel event-based measure of bilateral geopolitical alignment by employing large language models with web search capabilities to analyze over 440,000 political events across 196 countries from 1960--2019. This comprehensive measure enables us to identify the precise timing and magnitude of geopolitical shifts within countries over time. Using local projections with country fixed effects, we find that a one-standard-deviation improvement in geopolitical relations increases GDP per capita by 9.6 log points over 25 years. These persistent effects operate through multiple reinforcing channels -- enhanced political stability, increased investment, expanded trade, and productivity gains. Across our sample, geopolitical factors generate GDP variations ranging from -35% to +30%, with developing nations facing particularly severe penalties from international isolation. Our findings reveal how geopolitical alignment shapes economic prosperity in an increasingly fragmented global economy.

Problem

• Measuring geopolitical alignment impact on economic growth
• Analyzing 440,000 political events across 196 countries
• Quantifying GDP effects of geopolitical relations shifts

Innovation

• Uses large language models for event analysis
• Measures bilateral geopolitical alignment comprehensively
• Applies local projections with fixed effects