The impact of geopolitical tension on the economic development rates of developed and developing countries

The work is dedicated to a comprehensive analysis of the impact of geopolitical tension on the rates of economic development in developed and developing countries. The article emphasizes not only interstate armed conflicts but also qualitatively new phenomena of the modern situation – proxy wars, sanction pressure, trade wars, technological competition, and fractures in international alliances. The study identifies key channels through which geopolitical risks affect economic dynamics: changes in investor and consumer behavior, government budget expenditures, rising business costs, disruptions to global supply chains, and a decline in international investments. The main issue addressed by the work lies in the contradiction between the theoretically expected negative impact of geopolitical risks on economic growth and the heterogeneous empirical results obtained in various national contexts. The research is based on panel data covering 40 developed and developing countries from 1995 to 2025. Estimates were obtained using regression analysis through the available generalized least squares method, including fixed effects for countries and time. The study reveals different effects of geopolitical risk on economic growth depending on the nation’s specifics. A key finding is the discovery of a positive relationship between geopolitical risks and growth rates in developed countries, which is attributed to their ability to redirect resources toward technological innovation in response to external challenges. Developed economies demonstrate greater adaptability to shocks due to the presence of diversified production structures, a developed financial sector, and accumulated technological potential. In contrast, in developing countries, the direct effect of geopolitical risk is insignificant, as they are insufficiently diversified, reliant on foreign investment, and possess limited technological capabilities for innovation reorientation. The study demonstrates the significant role of institutional conditions: economic freedom positively influences adaptability to geopolitical shocks, while democracy in the short term is associated with lower growth rates due to investment crowding-out effects and political commitments to maintain high social expenditures. This work contributes to the understanding of the differentiated impact mechanisms of contemporary geopolitical risks on the global economy and justifies the need to develop strategies for managing geopolitical uncertainty specific to each group of countries.