Measuring Geopolitical Alignment and Economic Growth

Abstract

This paper introduces a new event-based measure of bilateral geopolitical alignment and provides evidence that it shapes economic growth. The measure is built from 373,020 geopolitical events across 193 countries over 1960--2024, compiled using large language models. With local projections exploiting within-country temporal variation, we find that a one-standard-deviation permanent improvement in geopolitical alignment increases GDP per capita by approximately 10 percent over 25 years. These effects are associated with improvements in domestic stability, investment, productivity, trade, and human capital. In accounting exercises, geopolitical factors account for GDP variations ranging from -30 to +30 percent across countries and time periods.