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Economic Growth and Prosperity in Times of Increased Geoeconomic Risks

Abstract

This project addresses the issue of geoeconomic risks and supply chain resilience against the backdrop of increasing geopolitical tensions, such as the US-China trade war and Russia's war on Ukraine. The COVID-19 pandemic and Europe's energy sanction dilemma have underscored the vulnerability of globalized economies, emphasizing the need for robust contingency planning despite the costs associated with reversing decades of global economic integration. The research aims to dissect the costs and benefits of strategies like "friend-shoring" or decoupling from China through two main subprojects. The first subproject is more foundational and focuses on the significance of exports for a nation's growth and prosperity, exploring how export shocks affect growth trajectories and developing a theoretical model of export-led growth. This analysis will consider the risks tied to a country's dependency on exports, especially when imports are crucial for production.

 

The second subproject shifts attention to the economic implications of a potential "great decoupling" between China and the West, with a particular focus on developing countries. It seeks to understand the strategic economic choices these countries face in aligning with either China or the West, considering the broader economic repercussions of such decisions using a quantitative trade model that allows for domestic frictions in the developing world.

 

 

Description of research unit