The cost to global output from trade fragmentation could range from 0.2 per cent of the gross domestic product (GDP) in a limited fragmentation-low-cost adjustment scenario to up to 7 per cent in a severe fragmentation-high-cost adjustment scenario, according to an International Monetary Fund (IMF) staff discussion note issued this month.
The note, titled ‘Geoeconomic Fragmentation and the Future of Multilateralism’, explores the potential economic ramifications of a policy-driven reversal of global economic integration, a multidimensional process that the authors at IMF refer to as geo-economic fragmentation (GEF).
With the addition of technological decoupling, the loss in output could reach 8 to 12 per cent in some countries, IMF said.
The benefits of globalisation propagate through multiple channels; the adverse consequences of GEF would be felt in many areas as well, it noted.
Estimates of the costs of GEF from economic modeling vary widely. Available studies suggest that the deeper the fragmentation, the deeper the costs; that technological decoupling significantly amplifies losses from trade restrictions; that adjustment costs are likely to be large; and that emerging market economies and low-income countries are likely to be most at risk due to the loss of knowledge spillovers, the note said.
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