Working Paper: CEPR ID: DP18576
Authors: Christopher Clayton; Matteo Maggiori; Jesse Schreger
Abstract: Governments use their countries’ economic strength from financial and trade relationships to achieve geopolitical and economic goals. We provide a model of the sources of geoeconomic power and how it is wielded. The source of this power is the ability of a hegemonic country to coordinate threats across disparate economic relationships as a mean of enforcement on foreign entities. The hegemon wields this power to demand costly actions out of the targeted entities, including mark-ups, import restrictions, tariffs, and political concessions. The hegemon uses its power to change targeted entities’ activities to manipulate the global equilibrium in its favor and increase its power. A sector is strategic either in helping the hegemon form threats or in manipulating the world equilibrium via input-output amplification. The hegemon acts a global enforcer, thus adding value to the world economy, but destroys value by distorting the equilibrium in its favor.
Keywords: geopolitics; economic coercion; economic statecraft; input-output networks; belt and road initiative; dollar diplomacy; national security
JEL Codes: F02; F05; P45
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| ability of a hegemon to coordinate threats across multiple economic relationships (D74) | geoeconomic power (F01) |
| geoeconomic power (F01) | influence and control over firms and governments (G38) |
| influence and control over firms and governments (G38) | extracting economic and political surplus (E25) |
| hegemon can demand actions from entities within its economic network (F60) | actions such as increased prices or restrictions on imports (F69) |
| hegemon's optimal actions (strategic pressure) (D74) | target countries' economic activities (F69) |
| controlling certain sectors amplifies hegemon's influence (F52) | changes in these sectors have a disproportionately large impact on the global economy (F69) |
| joint threats leverage multiple economic ties (D74) | enforce compliance (K40) |
| actions of the hegemon (D74) | economic coercion through strategic pressure (D74) |