Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/336013 
Year of Publication: 
2025
Series/Report no.: 
CESifo Working Paper No. 12311
Publisher: 
Munich Society for the Promotion of Economic Research - CESifo GmbH, Munich
Abstract: 
We develop a simple model that jointly determines the level of trade and the extent of trade-disruption risk associated with geopolitical conflict. Any pair of countries is likely to settle into one of two steady states: (i) a low level of trade coupled with high trade-disruption risk, or (ii) a high level of trade coupled with low trade-disruption risk. Intermediate cases are unstable. Examining bilateral trade flows between 1966 and 2015, we find, first, that the extent of trade varies systematically with trade-disruption risk and, second, that trade between country pairs tends to converge over time toward these polar cases.
Subjects: 
sourcing
interstate conflict
trade disruption risk
global value chains
multiple equilibria
JEL: 
F13
F14
Document Type: 
Working Paper
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