Research: When Geopolitical Risk Rises, Innovation Stalls

The impact of geopolitical conflict on global trade and security is clear. But how do rising geopolitical risk levels affect corporate innovation? The authors cross-referenced data from 4,625 U.S. companies over 32 years with a global index of geopolitical risk to quantify the link between geopolitics and innovation. At a high level, their analysis suggests that geopolitical risk has a substantial stifling effect on private sector innovation, in particular for companies with substantial exposure to foreign markets, and that that negative impact can persist for three to five years after the initial conflict. In light of these findings, the authors offer strategies to help companies minimize the impact of geopolitical risk on their own innovation, but argue that ultimately, the only way to address the underlying issue is for political and business leaders (alongside other key players, such as lawmakers and media platforms) to work together to reduce global tensions and build a more peaceful — and innovative — future.