The IMF assessed the impact of geopolitical shocks on international trade

Geopolitics has a “contradictory” and “statistically insignificant” impact on global trade dynamics, IMF analysts say . it is determined by the size of the economies of partner countries, location and membership in trade organizations

The end of globalization against the backdrop of geopolitical crises has been proclaimed many times, but none of these predictions have come true: this is proven by the dynamics of world trade, which generally demonstrates resistance to policies of protectionism and economic fragmentation. This is stated in the article by International Monetary Fund (IMF) expert Serhan Sevik, “Long Live Globalization: Geopolitical Shocks and International Trade,” which RBC reviewed.

The author analyzed bilateral trade flows of more than 59 thousand pairs of countries that existed in the period 1948–2021 and formed a gravity model that made it possible to assess the influence of various factors on foreign trade. He concluded that geopolitical shocks - such as the Cold War, the CORONAVIRUS pandemic, the various wars and conflicts seen during this period, including the Russian-Georgian conflict over South Ossetia or the annexation of Crimea - have a "contradictory" and "statistically insignificant" » impact on turnover indicators.

“History has shown that, despite isolated geopolitical differences, no country or region of the world can achieve sustainable economic development alone. Therefore, global integration continues to flourish,” the article says.

Previously, other IMF experts warned about the risks of “fragmentation of the world” due to the confrontation between the United States and CHINA . The Bank of RUSSIA also spoke about the possibility of dividing countries into blocs in one of its alternative economic forecasts.

What determines the dynamics of world trade

The model developed by Sevik, according to the author, allows us to assess the influence on the dynamics of international trade of such factors as the real GDP of partner countries per capita, their distance from each other, population, religion, membership in international organizations, as well as geopolitical relations. Based on the model, the author made the following conclusions:

The size of the GDP of two countries has a positive relationship with the volume of mutual trade RBC Pro development program Public speaking: a new skill Leadership charisma: how to be heard as a leader Business coach Matt Abrahams: don’t try to speak “correctly” How not to lose the audience: three fail-safe techniques for public speakers Rescue of a top manager: 10 techniques for answering tricky questions Anxiety before public speaking: how to cope with it How to prepare for a remote speech: a checklist for a speaker

The elasticity of trade flows with respect to real GDP per capita in the country of origin and destination is estimated by the author at 0.088 and 0.065, respectively. This means that an increase in their GDP by 10%, other things being equal, leads to an increase in bilateral trade turnover by an average of 8.8 and 6.5%, respectively.

Population, another indicator of the size of the economy, also has a positive relationship with trade dynamics, the article says. With a population growth in the country of destination of products by 10%, other things being equal, bilateral trade turnover increases by 11.2%, with a similar trend in the country of origin - by 3.3%, it follows from the research materials .

The distance of countries from each other negatively affects trade turnover

The greater the distance between two countries, the lower the volume of their bilateral trade, the study indicates. Trade turnover within one pair of countries that are located 10% further apart than another pair of countries will, all other things being equal, be 16% lower. This is due, among other things, to logistics costs, the author points out.

Membership of countries in trade organizations has a positive relationship with trade dynamics

Membership in international trade organizations is expected to be an important factor for entering new markets, reducing trade costs and, as a result, increasing trade turnover between countries. The modeling results showed that membership in the World Trade Organization (WTO) on average leads to an increase in trade flows of 2.3% for the destination country, and participation in the General Agreement on Tariffs and Trade (GATT) - by 0.7%, the report said. research.

Gravity models of foreign trade ( the dependence of trade flows on the GDP of partner countries and the distance between them, as well as additional factors) are considered one of the most stable empirical dependencies, notes leading expert of the Center for International Relations, Andrey Gnidchenko. “GDP is responsible for production capabilities (supply) and market volume ( import demand ), distance is responsible for transportation costs. It is quite expected and natural that these factors turned out to be the main ones in influence,” he points out.

However, the data of the proposed model do not take into account 2022, which could become a key year for such estimates, which makes the IMF expert’s conclusions somewhat hasty, Gnidchenko is categorical.

The “amazing” effect of geopolitics

The similarity of geopolitical interests of partner countries has a negative impact on foreign trade, the study showed. The geopolitical vector is assessed by the author of the study based on the model of behavior of states in the UN, namely voting for various resolutions.

“The estimated coefficient for geopolitics turned out to be, surprisingly, negative. This means that closer geopolitical proximity between the two countries implies comparatively less bilateral trade,” the article states. For the entire sample, its value is minus 0.026 (that is, with geopolitical convergence by 10%, trade turnover decreases by 2.6%). When discarding 5% of the top and bottom values ​​of the distribution, the indicator becomes statistically insignificant altogether, the author notes.

Moreover, the value of the geopolitical coefficient differs for developed and developing countries. “It has a negative meaning for developing countries and a positive one in the case of developed economies,” the article states. However, the IMF expert still defines his contribution as statistically insignificant.

“Overall, the estimates indicate that geopolitical proximity between countries, as measured by voting behavior at the UN, does not have a significant impact on trade globalization,” the author concludes.

Impact of the conflict in Ukraine

The study's findings demonstrate the fact that the world economy remains deeply interconnected despite global geopolitical shocks - even in current circumstances, the author points out.

“Military actions on the territory of Ukraine have undoubtedly increased geopolitical risks, as the corresponding index clearly demonstrates, but its recent growth has not reached previous highs recorded after the terrorist attacks of September 11, the Cuban missile crisis, not to mention two world wars,” the report notes. article.

The conflict in Ukraine indirectly affects trade, primarily as supply chains lengthen - somewhere due to sanctions, somewhere due to transportation difficulties, Gnidchenko notes.

“It is unlikely that it can significantly affect the dynamics of world trade (only in certain product segments and in certain geographic markets), but it is one of the many factors that act against globalization today,” he believes.

Together with other factors (tensions around Taiwan, the Palestinian-Israeli conflict, increased Western countries' concern about dependence on imports of critical goods), it may well lead to a decrease in the openness of world trade, Gnidchenko predicts.

The conflict in Ukraine, combined with sanctions pressure on Russia, will not have a dramatic (for example, greater than covid-19 ) impact on the international economy and international trade, says Alexander Knobel , DIRECTOR of the Institute of International Economics and Finance at VAVT. This is due to the fact that the parties to this conflict have the opportunity to partially redirect trade flows to alternative geographical directions, he concludes.