{
  "title": "Divided We Fall: Differential Exposure to Geopolitical Fragmentation in Trade",
  "publication": "IMF Working Papers, December 22, 2023",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2023/12/22/divided-we-fall-differential-exposure-to-geopolitical-fragmentation-in-trade-542842",
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  "summary": "This paper assesses differences in countries’ macroeconomic exposure to trade fragmentation along geopolitical lines. Estimating structural gravity regressions for sector-level bilateral trade flows between 185 countries, we find that differences in individual countries’ geopolitical ties act as a b",
  "sections": [
    {
      "heading": "Summary findings",
      "content": "- Differences in individual countries’ geopolitical ties act as a barrier to trade.\n- Largest sectoral effects are concentrated in a few sectors, notably food and high-end manufacturing.\n- Countries’ exposure via trade to geopolitical shifts varies with market size, comparative advantage, and foreign policy alignments.\n- Geoeconomic fragmentation—modelled as an increased sensitivity of trade costs to geopolitics and greater geopolitical polarization—generally leads to lower trade and incomes.\n- Emerging markets and developing economies (EMDEs) tend to see the largest impacts:\n  - Real per-capita income losses for the median EMDE in Asia are 80 percent larger than for the median advanced economy.\n  - Real per-capita income losses for the median EMDE in Africa are 120 percent larger than for the median advanced economy.\n- Conclusion: The costs of trade fragmentation could fall disproportionally on countries that can afford it the least."
    },
    {
      "heading": "Methodology",
      "content": "- Estimation approach:\n  - Structural gravity regressions for sector-level bilateral trade flows.\n  - Sample covers 185 countries.\n- Quantitative framework:\n  - Estimates from gravity regressions are introduced into a dynamic many-country, many-sector quantitative trade model.\n- Key modelled mechanisms:\n  - Increased sensitivity of trade costs to geopolitics.\n  - Greater geopolitical polarization."
    },
    {
      "heading": "Sectoral and cross-country variation",
      "content": "- Sectoral concentration:\n  - Largest trade-barrier effects observed in food and high-end manufacturing.\n- Cross-country determinants of exposure:\n  - Market size.\n  - Comparative advantage.\n  - Foreign policy alignments."
    },
    {
      "heading": "Quantitative impacts and distributional consequences",
      "content": "- Aggregate effect:\n  - Geoeconomic fragmentation generally reduces trade and incomes.\n- Disproportionate effects on EMDEs:\n  - Median EMDE in Asia: real per-capita income losses are 80 percent larger than for the median advanced economy.\n  - Median EMDE in Africa: real per-capita income losses are 120 percent larger than for the median advanced economy.\n- Implication:\n  - Costs of trade fragmentation could be concentrated among countries least able to bear them."
    },
    {
      "heading": "Publication and metadata",
      "content": "- Authors: Shushanik Hakobyan, Sergii Meleshchuk, Robert Zymek\n- Publication date: December 22, 2023\n- Series: IMF Working Papers, Working Paper No. 2023/270\n- Pages: 51\n- DOI: https://doi.org/10.5089/9798400262302.001\n- ISBN: 9798400262302\n- ISSN: 1018-5941\n- Subjects: Income, International trade, National accounts, Plurilateral trade, Trade agreements, Trade balance, Trade barriers\n- Keywords: Africa, Asia and Pacific, emerging markets and developing economies, foreign policy alignment, Geoeconomic fragmentation, Global, gravity, Income, Middle East and Central Asia, Plurilateral trade, Sub-Saharan Africa, Trade agreements, Trade balance, trade barriers, trade cost, trade fragmentation, trade model\n\nIMF Working Paper by Shushanik Hakobyan, Sergii Meleshchuk, and Robert Zymek (December 22, 2023).\n\n---\n\n Content in this bundle\n\n- Working Paper\n  - Working Paper (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Working Paper (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2023/12/22/divided-we-fall-differential-exposure-to-geopolitical-fragmentation-in-trade-542842"
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    "Authors: Shushanik Hakobyan, Sergii Meleshchuk, Robert Zymek",
    "Published: December 22, 2023",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9798400262302.001",
    "Differences in individual countries’ geopolitical ties act as a barrier to trade.",
    "Largest sectoral effects are concentrated in a few sectors, notably food and high-end manufacturing.",
    "Countries’ exposure via trade to geopolitical shifts varies with market size, comparative advantage, and foreign policy alignments.",
    "Geoeconomic fragmentation—modelled as an increased sensitivity of trade costs to geopolitics and greater geopolitical polarization—generally leads to lower trade and incomes.",
    "Emerging markets and developing economies (EMDEs) tend to see the largest impacts:",
    "Conclusion: The costs of trade fragmentation could fall disproportionally on countries that can afford it the least.",
    "Estimation approach:",
    "Quantitative framework:",
    "Key modelled mechanisms:",
    "Sectoral concentration:",
    "Cross-country determinants of exposure:",
    "Aggregate effect:",
    "Disproportionate effects on EMDEs:",
    "Implication:",
    "Authors: Shushanik Hakobyan, Sergii Meleshchuk, Robert Zymek",
    "Publication date: December 22, 2023",
    "Series: IMF Working Papers, Working Paper No. 2023/270",
    "Pages: 51",
    "DOI: https://doi.org/10.5089/9798400262302.001",
    "ISBN: 9798400262302",
    "ISSN: 1018-5941",
    "Subjects: Income, International trade, National accounts, Plurilateral trade, Trade agreements, Trade balance, Trade barriers",
    "Keywords: Africa, Asia and Pacific, emerging markets and developing economies, foreign policy alignment, Geoeconomic fragmentation, Global, gravity, Income, Middle East and Central Asia, Plurilateral trade, Sub-Saharan Africa, Trade agreements, Trade balance, trade barriers, trade cost, trade fragmentation, trade model",
    "**Working Paper**"
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