Geopolitical Risk Revealed in International Investment and World Trade

We construct a metric of geoeconomical distance from international investment and world trade to assess the risk of interstate conflict. Geoeconomical distance measures the mutual excessive acceptance of investments and exports between two countries. We show that a country’s distance to the US and China is a significant predictor of its involvement into interstate conflict(s). Splitting the sample into two periods, we find that countries approaching China at the cost of their proximity to the US are confronted with significantly higher risk of interstate conflict in the early post-Cold War period, as are countries located at the outskirts of the unipolar system as measured by their distance from the US. In the later period, a country’s concurrent motion toward China and away from the US, unlike the earlier period, does not increase its risk to be involved in interstate conflict(s). Furthermore, countries located at the periphery of the nascent Sino-US bipolar system have lower geopolitical risk than those residing close to their respective centers.