Political alliances and trade: Europe in a polarized world
trade-wars
political-economy
gravity
European Journal of Political Economy, 2024. With Karen Jackson.
This study investigates how political alliances influence trade and welfare in Europe and major global economies amid escalating geopolitical tensions. Using a panel data approach, we assess the impact of military alliances on trade through structural gravity and staggered difference-in-differences methods, then simulate the effects of alliance strengthening or disintegration. NATO enlargement brings economic benefits for Europe, while a US withdrawal from NATO or a deepening Shanghai Cooperation Organisation would produce significant negative trade and welfare effects.
Show abstract
This study investigates how political alliances influence trade and welfare in Europe and major global economies amid escalating geopolitical tensions. Using a panel data approach, we assess the impact of military alliances on trade through structural gravity and staggered difference-in-differences methods, then simulate the effects of alliance strengthening or disintegration. NATO enlargement brings economic benefits for Europe, while a US withdrawal from NATO or a deepening Shanghai Cooperation Organisation would produce significant negative trade and welfare effects.
Bilateral trade flows increasingly track political alignment, not just the standard gravity-model fundamentals of distance, size, and trade agreements. Using a structural gravity framework, we show that political alliances are a statistically significant predictor of trade between European economies and the rest of the world, and that the strength of this relationship has grown as global politics has polarized.
Published in: European Journal of Political Economy, 85(C)