Geopolitical Barriers to Globalization

2025-09-15

AI Summary

This study investigates the long-term impact of geopolitical alignment on global trade. To address measurement challenges, we construct the first large-language-model–based bilateral geopolitical alignment index, synthesizing 830,000 political event records. Combining local projections within a gravity framework with a quantitative general equilibrium model, we structurally identify the dynamic elasticity of trade to shifts in geopolitical relations. Results show that a one-standard-deviation increase in geopolitical alignment raises bilateral trade by 20% over a decade; conversely, deteriorating geopolitical relations between 1995 and 2020 reduced aggregate global trade by 7 percentage points. Our work makes two key contributions: (i) it introduces a high-dimensional, continuous, and interpretable quantification of geopolitical alignment; and (ii) it provides the first structural identification of its trade effects, offering microfoundations and empirical evidence for understanding contemporary “deglobalization” trends.

Technology Category

• Game Theory and Economic Paradigms: Coordination and Collaboration
• Knowledge Representation and Reasoning: Geometric, Spatial, and Temporal Reasoning
• Machine Learning: Graph-based Machine Learning

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
• Economics, Online Markets and Human Computation: The sharing economy

Abstract

This paper systematically estimates and quantifies how geopolitical alignment shapes global trade across three distinct eras: the Cold War, hyper-globalization, and contemporary fragmentation. We construct a novel measure of bilateral alignment using large language models to compile and analyze 833,485 political events spanning 193 countries from 1950 to 2024. Our analysis reveals that trade flows systematically track geopolitical alignment in both bilateral relationships and aggregate patterns. Using local projections within a gravity framework, we estimate that a one-standard-deviation improvement in geopolitical alignment increases bilateral trade by 20 percent over ten years. Integrating these elasticities into a quantitative general equilibrium model, we find that deteriorating geopolitical relations have reduced global trade by 7 percentage points between 1995 and 2020. Our findings provide empirical benchmarks for evaluating the costs of geopolitical fragmentation in an era of renewed great power competition.

Problem

• Quantifying how geopolitical alignment affects global trade
• Measuring bilateral alignment using large language models
• Assessing trade reduction from deteriorating geopolitical relations

Innovation

• Using large language models to analyze political events
• Applying local projections within gravity framework
• Integrating elasticities into general equilibrium model