Measuring Geopolitical Fragmentation: Implications for Trade, Financial Flows, and Economic Policy

RePEc Short ID: psa547
ORCID iD: 0000-0002-3788-4511

Airaudo, Florencia; Richards, Keith; Santacreu, Ana Maria; de Soyres, Francois

doi:10.20955/wp.2025.006

Working Paper

Measuring Geopolitical Fragmentation: Implications for Trade, Financial Flows, and Economic Policy

Abstract: Recent geopolitical tensions have revived interest in understanding the economic consequences of geopolitical fragmentation. Using bilateral trade flows, portfolio investment data, and detailed records of economic policy interventions, we revisit widely-used geopolitical distance metrics, specifically the Ideal Point Distance (IPD) derived from United Nations General Assembly voting. We document substantial variability in measured fragmentation, driven significantly by methodological choices related to sample periods and vote categories, especially in the wake of Russia’s 2022 invasion of Ukraine. Our results show robust evidence of increasing fragmentation in both trade flows and economic policy interventions among geopolitically distant country pairs, with particularly strong effects observed in strategically important sectors and policy motives. In contrast, financial portfolio allocations exhibit weaker, more heterogeneous, and context-sensitive responses. These findings highlight the critical importance of methodological transparency and careful specification when assessing geopolitical realignments and their implications for international economic relations.

JEL Classification: F14; F36; F50; F60;

https://doi.org/10.20955/wp.2025.006