Arnaud Mehl, Martin Schmitz, Cédric Tille, 29 September 2020

The geographical distance between two countries has a substantial impact on their economic relationship, affecting trade, foreign direct investment, and international banking linkages. Using data from the Great Recession and the COVID-19 pandemic, this column demonstrates that the financial linkages between countries located far from one another experience more volatility during crises than those between countries that are closer together. Policymakers concerned about their country’s exposure to global cycles should focus not only on their primary trading partners, but also on trade flows with more distant partners.

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