The Effect of the US Macroeconomic Indicators on the International Geopolitical Risk

ABSTRACT

The recent economic literature concludes that geopolitical risk has significantly impacted various economic variables over the past years. This paper focuses on a new dimension and seeks to answer if the US major macroeconomic indicators affect the international geopolitical risk (GPR). Based on our knowledge, there is no such study conducted so far, and thus, we propose to fill this gap. We constructed a theoretical framework and estimated an econometric model using the Autoregressive Distributed Lag methodology and quarterly data (1973–2020). The results show a statistically significant effect of the US macroeconomic variables on the GPR. The long-run results are decisive and unique, while the short-run influences are mixed in significance levels and signs. Hence, the short-run impact may differ over time and its final impact depends on the outweighing effect between the harmful and beneficial outcomes. The findings prove that a dominant country with economic and political powers can influence the GPR. From a policy implication side, we affirm that globalization should proceed side by side with cooperation and coordination among nations to solve economic glitches. Otherwise, geopolitical risk will make the economic performance worse.

KEYWORDS:

• Geopolitical risk
• macroeconomic indicators
• the US economy
• ARDL model

JEL CLASSIFICATION:

• C22
• C82
• E02
• F51.

Acknowledgments

The author would like to thank the editor and two anonymous referees of Defence and Peace Economics for the valuable and helpful comments. The author is responsible for any remaining errors.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. It includes political stability, quality of governance, economic freedom, political constraints, and government size.

2. For more details, see Ernst & Young (2020).

3. Financial Times, 27 September 2010 available at: https://www.ft.com/content/33ff9624-ca48-11df-a860-00144feab49a

4. GPRH is the historical version of the GPR index, and it is designed to cover the period 1899 till now. While GPR covers the period 1985 till now. GPRH and GPR have the same definition, meaning, and estimation methodology as shown in the paper. However, the only difference between them is that GPRH is extracted from three historical newspapers namely The New York Times, the Chicago Tribune, and the Washington Post, while GPR is withdrawn from eleven well-known newspapers. The source of those two indices is Caldara and Iacoviello (2019).

5. Available at https://www.stlouisfed.org