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Which Countries Face The Most Geopolitical Risk?

  • Russa’s invasion of Ukraine has upended global trade. 
  • Geopolitical risk has a strong correlation with GDP per capita, meaning that developing economies typically have less stability.
  • As a result of the Russia-Ukraine war, the World Bank estimates that “world trade will drop by 1%, lowering global GDP by 0.7% and GDP of low-income economies by 1%.”

The Russia-Ukraine war highlighted how geopolitical risk can up-end supply chains and weaponize trade. More precisely, the war led to trade sanctions, a food crisis, and energy shortages.

In this graphic from The Hinrich Foundation, the third in a five-part series on the sustainability of trade, Visual Capitalist's Jenna Ross explores how geopolitical risk differs by economy. It pulls data from the 2022 Sustainable Trade Index, which The Hinrich Foundation produced in collaboration with the IMD World Competitiveness Center.

Breaking Down Geopolitical Risk

Geopolitical risk has a strong correlation with GDP per capita, meaning that developing economies typically have less stability.

The following table shows how geopolitical risk breaks down for select economies that are covered in the 2022 Sustainable Trade Index. A lower number indicates less stability, while a higher number indicates more stability.

Economy

Geopolitical Stability

Pakistan

5.2

Myanmar

9.9

Bangladesh

16.0

India

17.0

Mexico

17.9

Philippines

18.9

Papua New Guinea

20.3

Russia

20.8

Thailand

24.5

Indonesia

28.3

Ecuador

34.4

China

37.7

Peru

38.7

Cambodia

41.0

Vietnam

44.8

Sri Lanka

45.3

U.S.

46.2

Chile

49.1

Hong Kong

50.0

Malaysia

50.9

UK

61.3

South Korea

62.7

Laos

69.3

Taiwan

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72.2

Australia

73.1

Japan

87.3

Canada

90.1

Brunei

90.6

Singapore

97.2

New Zealand

97.6

Source: World Bank, based on the latest available data from 2020. Values measure perceptions of political instability and violence, which are a proxy and precursor to geopolitical risk.

New Zealand has the highest level of stability, likely supported by the fact that it is a small nation with no direct neighbors. The country has taken steps to repair relationships with Indigenous peoples, through land and monetary settlements, though challenges remain. 

The U.S. has moderate stability. It has been impacted by increasing political polarization that has led to people having lower trust in institutions and more negative views of people from the opposing party. As the world’s largest economy, the U.S. also faces geopolitical risk such as escalating tariffs in the U.S.-China trade war. 

Want more insights into trade sustainability?

Download the 2022 Sustainable Trade Index for free.

Russia has one of the lowest levels of stability. The country’s invasion of Ukraine has led to war along with economic roadblocks that restrict normal trade activity. For instance, sanctions against Russia and blocked Ukrainian ports led to a food shortage. The two countries supply a third of the world’s wheat and 75% of the sunflower oil supply. 

The Impact of Geopolitical Uncertainty on Trade

Geopolitical risk can lead to civil unrest and war. It also has economic consequences including trade disruptions. As a result of the Russia-Ukraine war, the World Bank estimates that “world trade will drop by 1%, lowering global GDP by 0.7% and GDP of low-income economies by 1%.” A separate study found that Pakistan’s history of political instability has negatively affected trade in the country.

Of course, geopolitical risk is just one component of an economy’s trade sustainability. The Sustainable Trade Index uses a number of other metrics to measure economies’ ability to trade in a way that balances economic growth, societal development, and environmental protection. To learn more, visit the STI landing page where you can download the report for free.

By Zerohedge.com

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Leave a comment
  • Marcell de Pinto on February 09 2023 said:
    "The country has taken steps to repair relationships with Indigenous peoples, through land and monetary settlements, though challenges remain." - What does this have to do with geopolitical stability? Surely issues like these, were they to boil over would only have an effect on New Zealand domestically thus be mostly irrelevant to the overall geopolitical situation.

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