Working Paper: NBER ID: w31852
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: geoeconomics; economic power; geopolitical goals; input-output linkages; contract enforceability
JEL Codes: F02; F10; F5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| hegemon's ability to consolidate disparate threats (D74) | effectiveness of economic coercion (F51) |
| joint threats (D74) | value of threats (D46) |
| controlling strategic sectors (L52) | hegemon's power (D74) |
| allocation of strategic sectors (L52) | influence on global economy (F69) |
| hegemon's optimal actions (D74) | extraction of surplus (Y60) |
| hegemon's extraction of surplus (D46) | distortion of incentives within the network (D85) |