Mapping geopolitical fragmentation: a bilateral index for economic analysis

Summary

We present a new index that can be used for analyzing the economic impact of shifts in political relations between countries. We combine three freely available and regularly updated global indicators into a bilateral index that reflects geopolitical fragmentation across 193 countries from 2002 to 2022. In addition, we analyze political bloc building, finding that over recent years, next to a US and a China bloc, a third bloc emerged, consisting mainly of South American and Southern African countries.

Highlights

A new bloc of emerging and growth-leading economies 
We show that next to the two longstanding political blocs – the USEuropean and the Chinese-Russian blocs – a third bloc has emerged. This bloc consists of emerging and growth-leading economies in South America and Southern Africa. India stands out as having alternated between the Chinese and the third bloc. 

A theory-based index for policymaking 
Our theory-based index helps derive information on the economic impact of ongoing shifts in geopolitical relations. Such information is of utmost importance to policymakers and central banks, in particular as recent political shocks and tensions have significantly altered global financial and trade flows. 

Machine learning to identify geopolitical blocs 
On the technical side, we use the Louvain clustering algorithm to detect geopolitical blocs. The method is a network-based machine learning approach that identifies communities inside a network structure. To the best of our knowledge, we are the first to apply the technique on geopolitical networks.