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Geopolitical risk and economic growth: Evidence from ASEAN countries

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  • Han, Lin
  • Ning, Depeng
  • Xin, Shiguan

Abstract

This study investigates the impact of geopolitical risk (GPR) on economic growth in 10 Association of Southeast Asian Nations (ASEAN) countries, employing pooled mean group (PMG) and aggregated autoregressive distributed lag (ARDL) models. The results reveal insightful findings. The PMG estimator identifies a significant positive long-term relationship between GPR and economic growth, indicating that external geopolitical disturbances can stimulate growth through mechanisms such as trade diversion, capital inflow, and fiscal stimulus. Conversely, the aggregated ARDL model excluding country-specific variations highlights a significant negative impact, emphasizing the general detrimental effects of geopolitical uncertainties. Additionally, investment (gross fixed capital) and trade openness (TRD) consistently demonstrate robust positive impacts on economic growth, underscoring their significance in sustaining regional economic stability. Our findings reveal mixed outcomes regarding government effectiveness, suggesting potential reverse causality where economic growth may lead to governance improvements. The error correction analysis reveals that approximately 59 % of short-term deviations from long-term equilibrium are corrected annually, with significant heterogeneity across ASEAN countries’ response rates to geopolitical shocks. The study concludes with targeted policy recommendations emphasizing infrastructure improvement, deepening regional TRD, strengthening institutional governance, and prioritizing structural reforms. Finally, we acknowledge limitations such as the nondecomposition of GPR and the lack of nonlinear or threshold effects exploration, suggesting avenues for future research.

Suggested Citation

  • Han, Lin & Ning, Depeng & Xin, Shiguan, 2026. "Geopolitical risk and economic growth: Evidence from ASEAN countries," Finance Research Letters, Elsevier, vol. 88(C).
    • Handle: RePEc:eee:finlet:v:88:y:2026:i:c:s1544612325023517
    DOI: 10.1016/j.frl.2025.109102
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    JEL classification:

    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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