Cover IMF Working Papers
Buy Book in Print
A Gravity Model of Geopolitics and Financial Fragmentation
Author:
Mario Catalan
Search for other papers by Mario Catalan in
Current site
Google Scholar Close
https://orcid.org/0000-0003-3165-822X
,
Salih Fendoglu
Search for other papers by Salih Fendoglu in
Current site
Google Scholar Close
, and
Tomohiro Tsuruga
Search for other papers by Tomohiro Tsuruga in
Current site
Google Scholar Close
Series:
IMF Working Papers
Volume/Issue:
Volume 2024: Issue 196
Language:
English
Publication Date:
13 Sep 2024
DOI:
https://doi.org/10.5089/9798400280337.001
ISBN:
9798400280337
ISSN:
1018-5941
Pages:
37
Keywords:
Globalization; geopolitics; geoeconomics; fragmentation; portfolioflows; cross-border; asset allocation; investment funds; gravitymodel; international finance.; investment diversion effect; geopolitical distance; recipient country; recipient-country time; country pair; Mutual funds; Estimation techniques; Plurilateral trade; Bonds; Global; Middle East
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
Download PDF (2.3 MB) Download Epub
Do geopolitical tensions between countries influence the cross-border asset allocation of investment funds? Our answer is yes. We estimate gravity models and find that investment funds allocate smaller shares of their portfolios to recipient countries that are geopolitically more distant to their country of origin—with geopolitical distance measured by dissimilarity in countries’ voting behavior in the United Nations General Assembly. We also find an investment diversion effect: a recipient country attracts additional investments when its source countries get geopolitically more distant to third-party countries. These results are robust to instrumenting geopolitical distance and using alternative distance measures.
  • Collapse
  • Expand
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund