Reports
Discussion Papers
No.981 The Geopolitical Infusion Effect on Productivity
by Yao WANG, Hong BAO, Bo MENG
October 2025
ABSTRACT
This paper investigates how geopolitical relations with the United States (U.S.)—the central power in the post–World War II international order—affect the total factor productivity (TFP) of other economies. Using a fixed-effects econometric framework covering 107 countries over the period 1954–2019, we identify a robust and systematic link between geopolitical proximity to the U.S. and higher national TFP levels. We term this relationship the “Geopolitical Infusion Effect.” Our empirical results show three main findings. First, closer geopolitical alignment with the U.S. is associated with higher TFP, reflecting the diffusion of political trust and economic integration benefits. Second, this effect is particularly pronounced in low-income economies, countries with strict capital controls, and several regions in Europe and Africa; it reached its peak during the era of “hyper-globalization” (the post–Cold War period through 2008). Third, mechanism analysis indicates that positive political relations primarily enhance TFP through three channels: (i) expansion of bilateral trade, especially exports to the U.S.; (ii) attraction of foreign direct investment inflows; and (iii) accelerated knowledge and technology diffusion. By integrating geopolitics into the analytical framework of productivity, this study demonstrates how the structure of international political power shapes long-run growth capacity via the infusion-type mechanisms of resource allocation efficiency and technological absorption capability.
Keywords: geopolitical relation, total factor productivity, U.S., hyper-globalization
JEL classification: F59, F50, O43, O47, F14
PDF available at https://hdl.handle.net/2344/0002001548
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