The Influence of Geopolitical Risks on Bilateral Trade Flows
Männistö, Emil (2023-12-14)
The Influence of Geopolitical Risks on Bilateral Trade Flows
(14.12.2023)
Julkaisu on tekijänoikeussäännösten alainen. Teosta voi lukea ja tulostaa henkilökohtaista käyttöä varten. Käyttö kaupallisiin tarkoituksiin on kielletty.
suljettu
Julkaisun pysyvä osoite on:
https://urn.fi/URN:NBN:fi-fe20231222156994
https://urn.fi/URN:NBN:fi-fe20231222156994
Tiivistelmä
This thesis examines the impact of geopolitical risks on international trade flows. In recent times,
geopolitical risks have risen to the forefront, influenced by critical events like the Ukraine-Russia
war. Such risks include uncertainties in geopolitics, economics, and policy, with profound
implications on global dynamics.
The study focuses on analysing these risks from an international trade perspective, a key
component of the global economy that enables nations to leverage comparative advantages and
foster economic growth. Prior foundational work by Gupta et al. (2019) utilised the geopolitical
risk index from Caldara and Iacoviello (2022) to analyse the relationship between geopolitical
uncertainties and trade dynamics. However, this thesis extends the literature by focusing on the
diverse differences within the geopolitical risk index, specifically between geopolitical acts and
threats, and their varied impacts on industry-specific trade flows.
Employing a gravity model analysis across nine sectors, the thesis aims to illustrate how actual
geopolitical acts and potential threats influence trade flows differently. This approach allows for
a comprehensive exploration of how various industries respond to these risks, highlighting their
sensitivities and resilience to geopolitical disruptions. Our results suggest that geopolitical risks
are important to disaggregate to its subindexes, geopolitical threats and geopolitical acts, because
of their opposing effects. Furthermore, industries like food, textiles, and vehicles could be more
resistant to geopolitical risks.
The findings of this research are set up to offer significant insights for businesses in the
international market, aiding in the development of strategies to navigate a geopolitically volatile
environment. Additionally, it contributes to the academic discourse by filling gaps in existing
literature, particularly regarding the differential effects of geopolitical risks on international trade
flows, and offers valuable perspectives for policymakers and scholars
geopolitical risks have risen to the forefront, influenced by critical events like the Ukraine-Russia
war. Such risks include uncertainties in geopolitics, economics, and policy, with profound
implications on global dynamics.
The study focuses on analysing these risks from an international trade perspective, a key
component of the global economy that enables nations to leverage comparative advantages and
foster economic growth. Prior foundational work by Gupta et al. (2019) utilised the geopolitical
risk index from Caldara and Iacoviello (2022) to analyse the relationship between geopolitical
uncertainties and trade dynamics. However, this thesis extends the literature by focusing on the
diverse differences within the geopolitical risk index, specifically between geopolitical acts and
threats, and their varied impacts on industry-specific trade flows.
Employing a gravity model analysis across nine sectors, the thesis aims to illustrate how actual
geopolitical acts and potential threats influence trade flows differently. This approach allows for
a comprehensive exploration of how various industries respond to these risks, highlighting their
sensitivities and resilience to geopolitical disruptions. Our results suggest that geopolitical risks
are important to disaggregate to its subindexes, geopolitical threats and geopolitical acts, because
of their opposing effects. Furthermore, industries like food, textiles, and vehicles could be more
resistant to geopolitical risks.
The findings of this research are set up to offer significant insights for businesses in the
international market, aiding in the development of strategies to navigate a geopolitically volatile
environment. Additionally, it contributes to the academic discourse by filling gaps in existing
literature, particularly regarding the differential effects of geopolitical risks on international trade
flows, and offers valuable perspectives for policymakers and scholars