Citation

Caldara D, Iacoviello M. Am. Econ. Rev. 2022; 112(4): 1194-1225.

Copyright

(Copyright © 2022, American Economic Association)

DOI

10.1257/aer.20191823

PMID

unavailable

Abstract

We present a news-based measure of adverse geopolitical events and associated risks. The geopolitical risk (GPR) index spikes around the two world wars, at the beginning of the Korean War, during the Cuban Missile Crisis, and after 9/11. Higher geopolitical risk foreshadows lower investment and employment and is associated with higher disaster probability and larger downside risks. The adverse consequences of the GPR index are driven by both the threat and the realization of adverse geopolitical events. We complement our aggregate measures with industry- and firm-level indicators of geopolitical risk. Investment drops more in industries that are exposed to aggregate geopolitical risk. Higher firm-level geopolitical risk is associated with lower firm-level investment.

Language: en

Keywords

Capacity, National Security and War, Economic History: Government, War, Law, International Relations, and Regulation: General, International, or Comparative; Cycles, International Conflicts; Economic Nationalism, Capital Budgeting; Fixed Investment and Inventory Studies; Index Numbers and Aggregation; leading indicators, Business Fluctuations; Negotiations; Sanctions, National Security