About Geo-Economic Fragmentation:
- ‘Geo-economic fragmentation’ can be defined as a policy-driven reversal of global economic integration often guided by strategic considerations.
- It is characterized by countries forming trade and financial partnerships based on geopolitical alignments.
- This process encompasses different channels, including trade, capital, and migration flows.
- This trend, marked by a retreat from multilateralism, has made geography less relevant than geopolitics in trade and investment decisions.
- Such fragmentation would result in permanent losses to global GDP.
- Based on IMF estimates, the costs of geoeconomic fragmentation can range from 0.2 percent to up to 7 percent of GDP in some economies.
- These losses can emanate from technological decoupling, trade restrictions, reduced capital movements owing to higher risk aversion, and a decline in international cooperation in the provision of global public goods among economies.
- Trade is the main channel through which fragmentation is reshaping the global economy.
- The impact of geo-economic fragmentation is seen in global FDI flows, which are increasingly concentrated among geopolitically aligned countries, particularly in strategic sectors.
