Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/324258 
Year of Publication: 
2025
Series/Report no.: 
Graduate Institute of International and Development Studies Working Paper No. HEIDWP11-2025
Publisher: 
Graduate Institute of International and Development Studies, Geneva
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.
Subjects: 
Geopolitical risks
economic expectations
uncertainty
trade linkages
JEL: 
F14
F41
F51
E37
D84
Document Type: 
Working Paper

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