## Geoeconomic Fragmentation and International Diversification Benefits

_IMF Working Papers, March 8, 2024_

## Source details

**Canonical URL:** [Geoeconomic Fragmentation and International Diversification Benefits](https://www.imf.org/en/publications/wp/issues/2024/03/08/geoeconomic-fragmentation-and-international-diversification-benefits-545768)

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## Bibliographic details
- Authors: Tatsushi Okuda, Tomohiro Tsuruga
- Published: March 8, 2024
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400269530.001

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### Summary and Objective
- Applies the two-country open-economy model with trade in stocks and bonds of Coeurdacier et al. (2010).
- Objective: quantify the loss of international diversification benefits for major advanced economies under geoeconomic fragmentation.
- Fragmentation defined operationally by inability to trade with geopolitically distant countries, measured by voting disagreement on foreign policy issues at the United Nations General Assembly meetings during 2012-2021.

### Methodology and Scenarios
- Model: two-country open-economy model with trade in stocks and bonds (Coeurdacier et al., 2010).
- Counterfactual simulations under different hypothetical fragmentation scenarios.
- Fragmentation metric: voting disagreement at UN General Assembly meetings, 2012-2021.
- Focus: major advanced economies with a significant presence in international financial markets.

### Key Findings
- Simulation results imply a potentially significant loss of international diversification benefits of financial openness for the considered advanced economies.
- Losses arise when trading is limited to partner countries that are geopolitical allies with highly synchronized business cycles.

### Thematic Tags and Subjects (as provided)
- Business cycles
- Consumption
- Economic growth
- Financial markets
- International capital markets
- National accounts
- Output gap
- Production
- Total factor productivity

### Keywords (as provided)
- Business cycles
- Consumption
- diversification benefit
- financial integration
- Geopolitical risk
- Global
- International capital markets
- international risk sharing
- investment efficiency process
- Output gap
- output volatility
- simulation result
- Total factor productivity
- volatility of Macro-Financial Variables

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- **Working Paper**
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_Source: https://www.imf.org/en/publications/wp/issues/2024/03/08/geoeconomic-fragmentation-and-international-diversification-benefits-545768_