Working Paper Revision

Technology, Geopolitics, and Trade

Abstract: We study how geopolitical shocks reshape innovation through the contractual structure of cross-border technology adoption. Empirically, royalty flows are more sensitive than goods trade to geopolitical distance, especially where intellectual property enforcement is weak. We build a growth-trade model in which political risk raises breach hazards in licensing contracts. Firms reprice royalties but compliant adoption declines, and innovation incentives respond to the joint evolution of price and quantity. Quantitatively, fragmentation reallocates innovation and lowers the balanced-growth path growth rate. This mechanism has direct policy implications: under a consumption-only objective there is no role for export controls: Intervention arises only when governments value technological leadership in addition to efficiency.

JEL Classification: F63; O14; O33; O34;

https://doi.org/10.20955/wp.2025.029

Bibliographic Information

Provider: Federal Reserve Bank of St. Louis

Part of Series: Working Papers

Publication Date: 2026-02-13

Number: 2025-029

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