Geopolitics and GDP: Structural Alignment Matters More than Near-Term Risk

Research evidence excerpt

Geopolitics and GDP: Structural Alignment Matters More than Near-Term Risk

Goldman Sachs Global Economics Analyst

Near-term geopolitical risks appear to be receding. Despite some signs of fragility, the

US-Iran memorandum of understanding lays the groundwork for a gradual normalization

of global economic conditions as oil flows through the Strait of Hormuz recover. But risks

around broader geopolitical and economic fragmentation remain, with some measures

signaling the lowest level of global alignment since the 1980s.

In this Global Economics Analyst, we explore the impact of geopolitics on the global

economy, with a particular focus on the longer-run implications for global growth.

Measuring Geopolitical Risk and Alignment

Recent academic research has focused on quantifying two distinct types of geopolitical

exposures.

1. Geopolitical risk event measures capture the quantity and intensity of events such as

military confrontations, political crises and diplomatic incidents. We use a

recently-introduced Geopolitical Risk Index from Iacoviello and Tong (2026)1 which

analyses historical geopolitical events on a country level by applying an LLM to

historical newspaper articles.

2. Geopolitical alignment measures instead quantify the relationships between nations—

how aligned a country is to other states. We measure alignment using a Geopolitical

Alignment Index constructed from the Global Geopolitical Events Database (GGED)

developed by Fan (2025)2. GGED uses a web-search enabled LLM model to identify

historical events between country pairs and assign scores reflecting relative

alignment or misalignment. Following Fan (2025), we construct country-level

alignment scores by taking GDP-weighted averages of the bilateral alignment

measures.