Geopolitical Shocks and Trade Integration: A Theoretical and Empirical Investigation of the BRICS

This study examines the impact of geopolitical shocks on international and regional trade integration, with a specific focus on the BRICS economies. The increasing fragmentation of global trade and the rising frequency of geopolitical conflicts have raised urgent questions as to how nations adapt their trade strategies amid uncertainty. The primary objective of this research is to analyze whether such geopolitical risks amplify trade volatility and accelerate shifts toward regionalism. The study hypothesizes that second-moment uncertainty shocks such as political instability, sanctions, or global conflicts lead to a disproportionate decline in foreign trade while simultaneously boosting intra-regional trade flows within BRICS. The study integrates Bloom’s (2009) uncertainty shock framework into an open economy model and empirically tests it using the cross-quantilogram (CQ) method. The study employs monthly data from the BRICS countries spanning the period 2000 to 2023. The CQ method captures the asymmetric response of trade integration to varying levels of geopolitical risk. The results reveal that higher geopolitical risks, especially during extreme events, are associated with a significant uptick in trade integration within the BRICS countries, thus supporting the theoretical model. Theoretically, this work contributes to the trade literature by integrating second-moment shocks and inventory adjustment mechanisms under uncertainty into open-economy frameworks. Practically, it offers insights for policymakers seeking resilient trade frameworks in the face of global instability. The findings emphasize the importance of regional strategies such as nearshoring and friend-shoring, which can reduce vulnerability to global shocks. This study offers a valuable lens for understanding the future of trade integration amid increasing geopolitical uncertainty.