Geoeconomic Fragmentation and the Rewiring of Global Trade: Evidence from a New Multidimensional Index

In this paper, a multidimensional index of geoeconomic fragmentation (geofragmentation) is developed, and its effects on international trade are examined. Using sixteen indicators spanning trade, finance, mobility, and political dimensions for 98 countries from 2000–2024, we estimate a bloc-restricted dynamic factor model that extracts a global fragmentation factor and four dimension-specific factors without imposing arbitrary weights. We then embed the index in a gravity model estimated via Poisson pseudomaximum likelihood on annual bilateral trade flows from 2000 to 2023, classifying countries into U.S.-aligned, China-aligned, and nonaligned blocs based on UN General Assembly voting patterns. We find that geofragmentation has increased steadily since the global financial crisis and is now approaching its post-September 11 peak. It significantly reduces bilateral trade, with interbloc flows contracting more than intrabloc flows do. However, nonaligned countries increase trade with both blocs during high-fragmentation episodes, likely acting as connectors that partially offset decoupling. These findings suggest that fragmentation is reconfiguring, rather than reversing, global economic integration.