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Geopolitical Conflict and Trade: Montesquieu Revisited

Author

Listed:
  • Jonas Adolph
  • Wilhelm Kohler
  • Gernot Müller

Abstract

We develop a simple model that jointly determines the level of trade and the extent of trade-disruption risk associated with geopolitical conflict. Any pair of countries is likely to settle into one of two steady states: (i) a low level of trade coupled with high trade-disruption risk, or (ii) a high level of trade coupled with low trade-disruption risk. Intermediate cases are unstable. Examining bilateral trade flows between 1966 and 2015, we find, first, that the extent of trade varies systematically with trade-disruption risk and, second, that trade between country pairs tends to converge over time toward these polar cases.

Suggested Citation

  • Jonas Adolph & Wilhelm Kohler & Gernot Müller, 2025. "Geopolitical Conflict and Trade: Montesquieu Revisited," CESifo Working Paper Series 12311, CESifo.
    • Handle: RePEc:ces:ceswps:_12311
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    File URL: https://www.ifo.de/DocDL/cesifo1_wp12311.pdf
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    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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