The Geopolitical Determinants of Economic Growth, 1960-2019

This paper establishes geopolitical relations as a first-order determinant of economic growth. We construct a novel event-based measure of bilateral geopolitical alignment by employing large language models with web search capabilities to analyze over 440,000 political events across 196 countries from 1960 to 2019. This comprehensive measure enables us to identify the precise timing and magnitude of geopolitical shifts. Exploiting within-country temporal variation, we find that a one-standard-deviation improvement in geopolitical relations increases GDP per capita by 10 percent over 15 years. These persistent effects operate through multiple reinforcing channels: enhanced political stability, increased investment, expanded trade, and productivity gains. Geopolitical factors account for GDP variations ranging from -35 to +30 percent across countries over our sample period, with developing nations exhibiting particularly severe penalties from international isolation.