Comparative Advantage and Openness under Global Fragmentation: Lessons from the Past 65 Years

This paper asks why openness has been such a strong catalyst for catch-up growth in some regions or countries, while in others it has been followed by stalled convergence, divergence, or stagnation. We conclude that “openness” in today’s geoeconomically fragmented world encompasses much more than trade intensity or formal trade integration. Positioning in trade networks, trade fundamentals, human capital, institutional capacity, and stability all matter for the potential productivity gains from trade. Using an unbalanced panel of up to 145 economies per year from 1960 to 2024, we estimate a dynamic growth equation with country and year effects. The baseline specification relates real GDP growth to lagged income and growth. We extend the traditional drivers of growth by controlling for positioning variables in the world economy: a proxy for economic integration based on the cumulative number of regional trade arrangements ratified by each economy; a commodity-dependence indicator; geoeconomic vulnerability (GeoV), which measures a country’s export exposure to geopolitically distant partners; and geoeconomic connectedness (GeoC), which measures the breadth of trade relationships across the geopolitical spectrum. GeoC captures an external “connector” position that may offset the costs of geoeconomic fragmentation by securing access to a wider variety of markets and resources. Our results indicate that the more geopolitically connected a country is, the stronger its investment-growth link. More diversified positioning improves an economy’s capacity to transform investment into output while reducing its dependence on past growth momentum, thereby strengthening shock absorption under fragmentation.