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Working paper
Geopolitical Risks and Trade
29 Sep 2025
Abstract
This paper studies the impact of geopolitical risks on international trade, using the Geopolitical Risk (GPR) index of Caldara and Iacoviello (2022) and an empirical gravity model. The impact of spikes in geopolitical risk on trade is negative, strong, and heterogeneous across sectors. The findings show that increases in geopolitical risk reduce trade by about 30 to 40 percent. These effects are equivalent to an increase of global tariffs of up to 14 percent. Services trade is most vulnerable to geopolitical risks, followed by agriculture, and the impact on manufacturing trade is moderate. These negative effects are partially mitigated by cultural and geographic proximity, as well as by the presence of trade agreements
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Details
- Title
- Geopolitical Risks and Trade
- Creators
- Alen Mulabdic - World BankYoto V Yotov - Drexel University
- Series
- Policy Research Working Paper
- Publisher
- World Bank; Washington, DC
- Number of pages
- 26
- Resource Type
- Working paper
- Language
- English
- Academic Unit
- Economics (School of Economics)
- Other Identifier
- 991022146942804721