A Gravity Model of Geopolitics and Financial Fragmentation
IMF Working Papers, September 13, 2024
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- A Gravity Model of Geopolitics and Financial Fragmentation
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Bibliographic details
- Authors: Mario Catalan, Salih Fendoglu, Tomohiro Tsuruga
- Published: September 13, 2024
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400280337.001
Summary and central findings
- Research question: Do geopolitical tensions between countries influence the cross-border asset allocation of investment funds?
- Main answer: Yes.
- Key empirical findings:
- Investment funds allocate smaller shares of their portfolios to recipient countries that are geopolitically more distant to their country of origin.
- Geopolitical distance is measured by dissimilarity in countries’ voting behavior in the United Nations General Assembly.
- There is an investment diversion effect: a recipient country attracts additional investments when its source countries get geopolitically more distant to third-party countries.
- Results are robust to instrumenting geopolitical distance and using alternative distance measures.
Methods and scope
- Methodology: Gravity models estimated to analyze cross-border asset allocation of investment funds.
- Robustness checks:
- Instrumenting geopolitical distance.
- Using alternative distance measures.
- Subject areas listed: Asset allocation, Asset and liability management, Bonds, Econometric analysis, Estimation techniques, Financial institutions, International trade, Mutual funds, Plurilateral trade.
Publication and metadata
- Authors: Mario Catalan, Salih Fendoglu, Tomohiro Tsuruga
- Date: September 13, 2024
- Series: IMF Working Papers
- Working Paper number: Working Paper No. 2024/196
- Issue: 196
- Volume: 2024
- Pages: 37
- DOI: https://doi.org/10.5089/9798400280337.001
- Stock No: WPIEA2024196
- ISBN: 9798400280337
- ISSN: 1018-5941
- Keywords: asset allocation, Bonds, country pair, cross-border, Estimation techniques, fragmentation, geoeconomics, geopolitical distance, geopolitics, Global, Globalization, gravitymodel, international finance., investment diversion effect, investment funds, Middle East, Mutual funds, Plurilateral trade, portfolioflows, recipient country, recipient-country time
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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