Working Papers:
Foreign Political Risk and Technological Change, with Joel Flynn, Antonie Levy, and Jacob Moscona NBER WP
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.
Geopolitical Barriers to Globalization, with Tianyu Fan, and Wei Xiang WP
Abstract: This paper estimates and quantifies how geopolitical alignment shapes global trade across three distinct eras: the Cold War, hyper-globalization, and contemporary fragmentation. We construct a novel measure of bilateral alignment using large language models to compile and analyze 833,485 political events spanning 193 countries from 1950 to 2024. Our analysis reveals that trade flows systematically track geopolitical alignment in both bilateral relationships and aggregate patterns. Using local projections within a gravity framework, we estimate that a one-standard-deviation improvement in geopolitical alignment increases bilateral trade by 20 percent over ten years. Integrating these elasticities into a quantitative general equilibrium model, we find that deteriorating geopolitical relations have reduced global trade by 7 percentage points between 1995 and 2020. Our findings provide empirical benchmarks for evaluating the costs of geopolitical fragmentation in an era of renewed great power competition.