International spillover effects of geopolitical risks on economic growth

This paper investigates the spillover effects of country-specific geopolitical risks on the economic growth of other countries. Our primary empirical contribution is the identification and quantification of these international risk transmission pathways, distinguishing between advanced and emerging economies as both sources and destinations of shocks. We employ the local projections method at the country-pair level to estimate the cumulative impulse responses of GDP growth to geopolitical risk shocks. Using quarterly data for 23 advanced and 25 emerging economies from 1985 to 2023, our findings reveal a striking asymmetry in global risk transmission. While advanced economies consistently experience significant and persistent economic contractions following geopolitical shocks, emerging markets display a degree of short-term resilience, often registering positive growth responses likely driven by substitution effects. Robustness checks indicate that these transmission channels have intensified in the post-pandemic era. The results underscore the necessity for differentiated policy responses, emphasizing supply chain diversification for advanced economies and the maintenance of robust financial buffers for emerging markets.