Global | Assessing Structural Geopolitical Risk

Summary

This paper introduces a novel measure of Structural Geopolitical Risk (SGR), designed to capture the long-run conditions that shape the likelihood of geopolitical tensions, conflicts, and fragmentation.

Key points

• Key points:
• We construct a new measure of Structural Geopolitical Risk (SGR) for nearly all countries worldwide over 1960-2025 that aims to measure the latent structural factors that increase the likelihood of future geopolitical disruptions.
• It combines an internal dimension (ISGR), capturing domestic political, institutional, and military vulnerabilities of each individual country, and crucially, an external dimension (ESGR), reflecting the political environment of different interconnected groups of foreign countries which are weighted by geographical proximity, military relevance, and ideological distance.
• We show that global SGR has risen steadily since the early 2000s, reaching levels comparable to those of the late Cold War by 2025.
• Validation exercises indicate that higher SGR is associated with weaker trade and investment, greater financial vulnerability, a higher probability of future conflicts and geopolitical risk events, and a stronger transmission of realized geopolitical shocks to economic activity.
• Extensive sensitivity analyses confirm the robustness of the indicator’s dynamics, cross-country rankings, and economic relationships.

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