An Empirical Analysis Of The Impact Of Geopolitics On Bilateral Trade

With the development of economic globalization and political multi-polarization,the world’s geopolitical pattern is undergoing profound changes.The new power of emerging countries such as China and its Asian partners is rising,while the superpowers like European countries and the United States are declining relatively.All countries are making and adjusting their new geopolitical strategies.Due to the breaking of the current political and economic balance,for the sake of national interests,in recent years,countries have been experiencing constant conflicts and the political situation in some countries has also been deteriorating.In this case,the political turmoil will also have an impact on bilateral trade.Based on current situation,this paper studies the relationship between the deterioration of geopolitical situation and bilateral trade by introducing geopolitical risk index.Firstly,combined with the current research results of domestic and foreign literature,the paper illustrates the impact of geopolitical risk on bilateral trade from three categories: negative impact,multiple impact and no impact.Based on the above literature review,this paper finds its research direction.Secondly,this paper points out the significance of this study based on the current situation of political and economic structure and existing research methods.Then it introduces the basic concepts of geopolitics and geopolitical risk index,analyses the rationality of the index,and outlines the impact of international political relations on international trade and investment.Using the gravity model of trade,combined with the panel data of 18countries’ trade volume and geopolitical risk index from 1996 to 2015,OLS and fixed effect regression are carried out to empirically test the impact of geopolitical risk or the deterioration of bilateral countries’ situation on trade volume.The result shows that the empirical analysis of this paper is basically consistent with previous research conclusions,that is,the deterioration of political relations or the increase of geopolitical risks have a negative correlation with bilateral trade.Considering the factors that may affect each other among variables,this paper adds several new variable interaction items to regress the above model,which can also ensure the stability of the regression.After adding the interaction item,the regression results of the main variables are basically consistent with those before joining the interaction item.The interaction item has no significant impact on the trade of importingcountries,but has a significant negative impact on the trade of exporting countries.That is to say,the new variables can not alleviate the negative impact of the geopolitical risk index of exporting countries on bilateral trade flows.In the end,this paper draws the conclusion of this study based on theoretical and empirical analysis,and puts forward some suggestions and measures to improve the political and economic relations of bilateral countries in the light of the new characteristics of the current political and economic pattern.