Effect of geopolitical distance on export efficiency in the transition countries

Abstract

This study explores the impact of geopolitical distance on trade efficiency in 18 transition economies from 1990 to 2020. It examines how differences in political alignment, measured through United Nations General Assembly (UNGA) voting patterns, influence export performance. Export efficiency is defined as the ratio of actual exports to potential exports. Geopolitical distance is quantified using voting similarity scores in the UNGA. The study employs a stochastic frontier analysis (SFA) to estimate export efficiency and assess the effects of geopolitical distance while controlling for economic and institutional factors. Greater geopolitical distance negatively affects export efficiency by increasing sourcing costs and input complexity. The impact varies over time and depends on the exporter’s political system, especially whether it remains a communist state, as well as the development level of trading partners. The findings underscore the importance of political alignment in trade efficiency. Transition economies with closer geopolitical ties to major trading partners tend to achieve higher export efficiency. The study offers insights for policymakers and business leaders in transition economies. To mitigate geopolitical risks, firms should diversify trade partners, while governments can pursue strategic diplomatic and trade policies to enhance market access.