Changing Global Linkages: A New Cold War?
IMF Working Papers, April 5, 2024
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- Changing Global Linkages: A New Cold War?
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Bibliographic details
- Authors: Gita Gopinath, Pierre-Olivier Gourinchas, Andrea F Presbitero, Petia Topalova
- Published: April 5, 2024
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400272745.001
Overview
- Authors: Gita Gopinath, Pierre-Olivier Gourinchas, Andrea F Presbitero, Petia Topalova
- Publication date: April 5, 2024
- Series: IMF Working Papers, Working Paper No. 2024/076
- Pages: 25
- DOI: https://doi.org/10.5089/9798400272745.001
- Core theme: Evidence of trade and investment fragmentation along geopolitical lines since Russia’s invasion of Ukraine, and comparison with the early years of the Cold War.
Key findings
- Using granular bilateral data, the paper documents fragmentation of trade and FDI along geopolitical lines since the onset of the war in Ukraine.
- Gravity model estimates point to declines in flows between countries in geopolitically distant blocs relative to flows between countries in the same bloc:
- Trade flows: roughly 12% decline.
- FDI flows: roughly 20% decline.
- The current extent of fragmentation is characterized as still relatively small; persistence and intensification of geopolitical tensions and trade-restrictive policies could substantially worsen fragmentation, as suggested by historical Cold War decoupling.
Comparison with the early Cold War
- The paper compares recent fragmentation with the historical experience of the early years of the Cold War.
- The Cold War exhibited pronounced decoupling between rival geopolitical blocs, implying potential for much stronger fragmentation if current tensions persist.
Role of nonaligned "connector" countries
- A set of nonaligned ‘connector’ countries is rapidly gaining importance and serving as a bridge between blocs.
- The emergence of connectors has likely brought resilience to global trade and activity.
- However, connectors:
- Do not necessarily increase diversification.
- Do not necessarily strengthen supply chains.
- Do not necessarily lessen strategic dependence.
Policy implications and interpretation
- Elevated geopolitical tensions and a surge in policies aimed at supply chain resilience and national security are changing global linkages.
- While current fragmentation is limited, policy choices and the duration of geopolitical tensions will influence whether fragmentation remains limited or deepens toward Cold War–like decoupling.
- The presence of connectors mitigates some risks to trade and activity but should not be seen as a substitute for policies that address diversification, supply-chain robustness, or strategic dependencies.
Subject and keywords (as provided)
- Subject: Balance of payments, Foreign direct investment, Imports, International trade, Trade agreements, Trade balance, Trade policy
- Keywords: Foreign direct investment, Fragmentation, Geoeconomics, Global, Imports, nonaligned connector, restrictive policy, supply chain resilience, surge in policy, Trade, Trade agreements, Trade balance, Trade policy, years of the Cold War
Source: IMF Working Paper "Changing Global Linkages: A New Cold War?", April 5, 2024 — https://www.imf.org/en/publications/wp/issues/2024/04/05/changing-global-linkages-a-new-cold-war-547357
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