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International trade and economic growth in the era of geoeconomic fragmentation

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  • Salvatore, Dominick
  • Tripathi, Janhavi Shankar

Abstract

This paper studies the relationship between international trade and economic growth during the era of geoeconomic fragmentation (2017–2023), using a simultaneous equations model estimated through the full information maximum likelihood method. The study covers 132 countries (30 advanced and 102 developing) and also analyzes trade-growth dynamics separately for large and small economies. The findings confirm that trade remains a crucial factor for economic growth, but it acts more as a facilitator than a direct driver. In advanced countries, exports positively contribute to capital formation and growth, and industrialization contributes significantly to exports, while capital inflows have a negative effect on fixed capital formation. For developing countries, industrialization significantly boosts exports and in turn economic growth. The study highlights that the rise in protectionism and trade disruptions during the geoeconomic fragmentation period may weaken the positive impact of trade on growth. The results are validated through dynamic simulations, underscoring the need for strategic industrialization and trade partnerships to sustain growth in a fragmented global economy.

Suggested Citation

  • Salvatore, Dominick & Tripathi, Janhavi Shankar, 2025. "International trade and economic growth in the era of geoeconomic fragmentation," Journal of Policy Modeling, Elsevier, vol. 47(4), pages 862-879.
    • Handle: RePEc:eee:jpolmo:v:47:y:2025:i:4:p:862-879
    DOI: 10.1016/j.jpolmod.2025.06.017
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    References listed on IDEAS

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    1. Krueger, Anne O, 1978. "Alternative Trade Strategies and Employment in LDCs," American Economic Review, American Economic Association, vol. 68(2), pages 270-274, May.
    2. Tripathi, Janhavi Shankar, 2023. "Trade-growth nexus: A study of G20 countries using simultaneous equations model with dynamic policy simulations," Journal of Policy Modeling, Elsevier, vol. 45(4), pages 806-816.
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    6. Dominick Salvatore, 1983. "A Simultaneous Equations Model of Trade and Development with Dynamic Policy Simulations," Kyklos, Wiley Blackwell, vol. 36(1), pages 66-90, August.
    7. Salvatore, Dominick, 2023. "A simultaneous equations model of the relationship between international trade, and economic growth and development with dynamic policy simulations," Journal of Policy Modeling, Elsevier, vol. 45(4), pages 789-805.
    8. Salvatore, Dominick & Tripathi, Janhavi Shankar, 2024. "Relationship between trade and growth for developing countries at different levels of income," Journal of Policy Modeling, Elsevier, vol. 46(4), pages 813-822.
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    Keywords

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    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • F1 - International Economics - - Trade
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • O5 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies

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