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Geopolitical Risks and Economic Expectations: The Role of Trade Linkages

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  • Antoine Cornevin

    (Geneva Graduate Institute (IHEID), Department of International Economics)

Abstract

I study the impact of domestic and foreign geopolitical risk (GPR) on economic expectations, and how trade linkages affect the transmission of foreign risks. Using monthly professional forecasts since 1995, I start by estimating the effect of GPR events on the distribution of expectations across 32 advanced and developing economies. I find that while changes in GPR do not shift median GDP forecasts, they increase their dispersion. I then assess how trade substitutability and concentration influence the cross-country transmission of GPR. I construct new countrylevel indicators based on granular product-level trade data and find that countries which have exports that are easy to substitute (the international demand for these exports is elastic) are more affected by foreign GPR shocks. Perhaps surprisingly, for these countries, foreign GPR shocks dominate domestic GPR shocks.

Suggested Citation

  • Antoine Cornevin, 2025. "Geopolitical Risks and Economic Expectations: The Role of Trade Linkages," IHEID Working Papers 11-2025, Economics Section, The Graduate Institute of International Studies.
    • Handle: RePEc:gii:giihei:heidwp11-2025
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    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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