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<p>This paper analyzes the inflation cost of geopolitical tension as manifested via trade in strategic goods. A nonlinear state space model containing spatial elements is specified for the task which has an added advantage of permitting endogenous spatial linkages with the latter being a proxy for geopolitical relationships. Estimation is performed using Particle MCMC methods. It is found that positive inflation spillover exists among five major world powers, and its presence would help propagate structural shocks to non-origin countries by up to 36% the size of the source disturbance. Two complementary but opposite effects underlie the magnitude of the inflation cost. The aggregate effect of strategic goods trade restriction turns out to be asymmetric and product- and country-pair dependent, with any involvement with China generating the highest costs. Eschewing antagonistic trade tactics conducted on massive scales may well be a way to improve economic well-being.</p>

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Inflation cost of strategic goods export restriction: evidence from dynamic spatial panel data model

  • 期刊论文

  • 发表日期：

    2025年10月2日

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  • William W. Chow

摘要

This paper analyzes the inflation cost of geopolitical tension as manifested via trade in strategic goods. A nonlinear state space model containing spatial elements is specified for the task which has an added advantage of permitting endogenous spatial linkages with the latter being a proxy for geopolitical relationships. Estimation is performed using Particle MCMC methods. It is found that positive inflation spillover exists among five major world powers, and its presence would help propagate structural shocks to non-origin countries by up to 36% the size of the source disturbance. Two complementary but opposite effects underlie the magnitude of the inflation cost. The aggregate effect of strategic goods trade restriction turns out to be asymmetric and product- and country-pair dependent, with any involvement with China generating the highest costs. Eschewing antagonistic trade tactics conducted on massive scales may well be a way to improve economic well-being.