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Technology, Geopolitics, and Trade


Abstract: We study how geopolitical fragmentation shapes cross-border technology licensing and innovation incentives. We show that bilateral royalty flows vary with geopolitical distance differently from goods trade, and that this relationship depends on intellectual property enforcement. To interpret these facts, we develop a growth-trade model in which geopolitical risk weakens licensing enforceability when intellectual property rights are poorly protected. Royalty payments reflect both technology adoption and licensing prices: weaker enforcement can reduce diffusion while inducing firms to reprice contracts. Reduced market size lowers returns to frontier technologies, whereas repricing can redirect innovation toward the technological leader, generating asymmetric welfare effects.

JEL Classification: F63; O14; O33; O34;

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

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Provider: Federal Reserve Bank of St. Louis

Part of Series: Working Papers

Publication Date: 2026-07-09

Number: 2025-029

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