Rising geopolitical tensions have implications for international trade and finance. These tensions and associated policy and behavioral responses can lead to increased fragmentation, with associated losses for productivity and risk sharing. Several researchers have examined shifts in cross-border patterns of trade and finance over the past few years, documenting how countries are increasingly relying on trade and financial partners more aligned with their geopolitical stance. Others have attempted to quantify the potential repercussions of an increasingly fragmented world economy.
In a presentation I made at a Central Bank of Peru conference in July 2024 (download the slide deck here), I summarized the evidence on the role played by emerging market economies and developing economies in global finance, through the lens of their weight in cross-border holdings of assets and liabilities. The presentation highlights how emerging market and developing economies’ role in cross-border financial flows, while increasing, remains much smaller than their share in global production and global trade.
Among emerging markets, China plays a big role (accounting for about 40% of GDP at market prices in 2023). While its external assets and liabilities have risen sharply in the past two decades, they remain lower as a share of its GDP than in other emerging market economies as a group, particularly for portfolio instruments such as stocks and bonds.
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