Measuring Geopolitical Alignment and Economic Growth

TL;DR

This paper develops a new event-based measure of bilateral geopolitical alignment using large language models, demonstrating its significant impact on economic growth and domestic stability across countries from 1960 to 2024.

Contribution

It introduces a novel, large-scale geopolitical alignment measure and empirically links it to long-term economic growth using advanced statistical methods.

Findings

A one-standard-deviation improvement in alignment boosts GDP per capita by 10% over 25 years.

Geopolitical factors explain up to 30% of GDP variation across countries and time.

Improved alignment correlates with better domestic stability, investment, and productivity.

Abstract

This paper introduces a new event-based measure of bilateral geopolitical alignment and provides evidence that it shapes economic growth. The measure is built from 373,020 geopolitical events across 193 countries over 1960--2024, compiled using large language models. With local projections exploiting within-country temporal variation, we find that a one-standard-deviation permanent improvement in geopolitical alignment increases GDP per capita by approximately 10 percent over 25 years. These effects are associated with improvements in domestic stability, investment, productivity, trade, and human capital. In accounting exercises, geopolitical factors account for GDP variations ranging from -30 to +30 percent across countries and time periods.