Geoeconomic Fragmentation: What’s at Stake for the EU
IMF Working Papers, November 30, 2023
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- Geoeconomic Fragmentation: What’s at Stake for the EU
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Bibliographic details
- Authors: Chikako Baba, Ting Lan, Aiko Mineshima, Florian Misch, Magali Pinat, Asghar Shahmoradi, Jiaxiong Yao, Rachel van Elkan
- Published: November 30, 2023
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400259098.001
Summary and scope
- Geoeconomic fragmentation (GEF) is becoming entrenched worldwide, and the European Union (EU) is not immune to its effects.
- The paper takes stock of GEF policies impinging on—and adopted by—the EU and considers how exposed the EU is through:
- trade channels,
- financial channels,
- technological channels.
- Motivated by current policies adopted by other countries, the paper simulates how various measures would affect the EU economy, including:
- raising costs of trade,
- raising costs of technology transfer,
- raising fossil fuel prices,
- imposition of sectoral subsidies.
Key findings
- Due to its high-degree of openness, the EU is found to be exposed to GEF through multiple channels.
- Simulated losses for the EU differ significantly across scenarios.
- From a welfare perspective, the results suggest the need for a cautious approach to GEF policies.
- The EU’s best defence against GEF is to strengthen the Single Market while advocating for a multilateral rules-based trading system.
Scenarios and channels analyzed
- Trade-cost increases (raising costs of trade).
- Technology-transfer barriers (raising costs of technology transfer).
- Energy-price shocks (raising fossil fuel prices).
- Distortions from policy interventions (imposition of sectoral subsidies).
Policy implications and recommendations
- Adopt a cautious approach to GEF policies, given heterogeneous welfare outcomes across scenarios.
- Strengthen the Single Market to reduce exposure through trade, financial, and technological channels.
- Advocate for a multilateral rules-based trading system as a primary strategic defence against GEF.
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- Working Paper