## Divided We Fall: Differential Exposure to Geopolitical Fragmentation in Trade

_IMF Working Papers, December 22, 2023_

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## Bibliographic details
- Authors: Shushanik Hakobyan, Sergii Meleshchuk, Robert Zymek
- Published: December 22, 2023
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400262302.001

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### Summary findings
- 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:
  - Real per-capita income losses for the median EMDE in Asia are 80 percent larger than for the median advanced economy.
  - Real per-capita income losses for the median EMDE in Africa are 120 percent larger than for the median advanced economy.
- Conclusion: The costs of trade fragmentation could fall disproportionally on countries that can afford it the least.

### Methodology
- Estimation approach:
  - Structural gravity regressions for sector-level bilateral trade flows.
  - Sample covers 185 countries.
- Quantitative framework:
  - Estimates from gravity regressions are introduced into a dynamic many-country, many-sector quantitative trade model.
- Key modelled mechanisms:
  - Increased sensitivity of trade costs to geopolitics.
  - Greater geopolitical polarization.

### Sectoral and cross-country variation
- Sectoral concentration:
  - Largest trade-barrier effects observed in food and high-end manufacturing.
- Cross-country determinants of exposure:
  - Market size.
  - Comparative advantage.
  - Foreign policy alignments.

### Quantitative impacts and distributional consequences
- Aggregate effect:
  - Geoeconomic fragmentation generally reduces trade and incomes.
- Disproportionate effects on EMDEs:
  - Median EMDE in Asia: real per-capita income losses are 80 percent larger than for the median advanced economy.
  - Median EMDE in Africa: real per-capita income losses are 120 percent larger than for the median advanced economy.
- Implication:
  - Costs of trade fragmentation could be concentrated among countries least able to bear them.

### Publication and metadata
- 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

*IMF Working Paper by Shushanik Hakobyan, Sergii Meleshchuk, and Robert Zymek (December 22, 2023).*

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_Source: https://www.imf.org/en/publications/wp/issues/2023/12/22/divided-we-fall-differential-exposure-to-geopolitical-fragmentation-in-trade-542842_