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Foreign Political Risk and Technological Change

Author

Listed:
  • Joel P. Flynn
  • Antoine B. Levy
  • Jacob Moscona
  • Mai Wo

Abstract

This paper studies how innovation reacts to foreign political risk and shapes its economic consequences. In a model with foreign political shocks that can disrupt the supply of foreign inputs, we show that greater political risk abroad increases domestic innovation, thereby lowering reliance on risky sourcing countries. We then combine data on sector-level technology development with time-varying measures of industry-level exposure to foreign political risk and report three sets of empirical findings. First, sectors and commodities with higher exposure to foreign political risk exhibit significantly greater innovative activity. This finding holds across sectors in the US, across country-sector pairs in a global sample, and across critical minerals that are essential for modern economic activity. Second, the response of innovation is particularly strong when risk emanates from geopolitical adversaries. This is consistent with our finding that trade restrictions are more likely to emerge between non-allies following a rise in political risk in either country. Third, directed innovation reduces countries’ reliance on imports from risky foreign markets. In doing so, technological change abroad amplifies the negative effects of domestic political risk on export performance.

Suggested Citation

  • Joel P. Flynn & Antoine B. Levy & Jacob Moscona & Mai Wo, 2025. "Foreign Political Risk and Technological Change," NBER Working Papers 33964, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:33964
    Note: ITI POL PR
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    More about this item

    JEL classification:

    • F50 - International Economics - - International Relations, National Security, and International Political Economy - - - General
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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