Working Papers: 

Abstract: This paper studies how innovation reacts to foreign political risk and shapes its economic consequences. In a model with foreign political shocks that can disrupt the supply of foreign inputs, we show that greater political risk abroad increases domestic innovation, thereby lowering reliance on risky sourcing countries. We then combine data on sector-level technology development with time-varying measures of industry-level exposure to foreign political risk and report three sets of empirical findings. First, sectors and commodities with higher exposure to foreign political risk exhibit significantly greater innovative activity. This finding holds across sectors in the US, across country-sector pairs in a globalsample, and across critical minerals that are essential for modern economic activity. Second, the response of innovation is particularly strong when risk emanates from geopolitical adversaries. This is consistent with our finding that trade restrictions are more likely to emerge between non-allies following a rise in political risk in either country. Third, directed innovation reduces countries’ reliance on imports from risky foreign markets. In doing so, technological change amplifies the negative effects of domestic political risk on export performance. 

Abstract: We show that since the mid-1990s, the trade-promoting effects of tariff liberalization have been increasingly offset by deteriorating geopolitical alignment, slowing trade globalization after 2007. To quantify this barrier, we use large language models to compile 833,480 geopolitical events across 193 countries, 1950–2024, and construct a bilateral geopolitical alignment score. Using local projections, we estimate that a one-standard-deviation permanent improvement in alignment raises bilateral trade by 22 percent in the long run. In an Armington framework, tariff reductions raised 2021 global trade by about 7.5 percent, while geopolitical deterioration reduced it by about 5.3 percent, with uneven welfare effects.