Does geopolitical risk affect exports? Evidence from China

Abstract

Geopolitical conflicts and power games among major nations present substantial challenges to cross-border trade and global economic development; however, the existing literature has given limited attention to the underlying macroimpact mechanisms, especially the pivotal role of outward foreign direct investment (OFDI). This paper utilizes export data spanning 2003–2021 to empirically investigate the influence of geopolitical risk on China's exports and unveil its specific internal mechanisms. The findings reveal that China's exports are negatively affected when its trading partners are exposed to geopolitical risk. Notably, China's OFDI is instrumental in mitigating the adverse effects of geopolitical risk on exports. Moreover, the heterogeneity analysis shows that the impact of geopolitical risk on China's exports is more significant in non-Belt and Road countries than in Belt and Road countries. Furthermore, the impact of geopolitical risk on exports also shows significant differences before and after the 2008 financial crisis.