Geoeconomic fragmentation and green exceptionalism: Evidence from trade and finance

Abstract

This study examines how geoeconomic fragmentation reshapes cross-border trade, capital allocation, and renewable energy deployment. It introduces Green Exceptionalism as a perspective on conditional resilience: transition-related resource allocation may be less sensitive to bilateral frictions when demand remains persistent or resources can be redirected across financing and institutional channels, but more vulnerable when delivery depends on specific bilateral relationships. Using bilateral gravity models covering 59,963 trade dyad-years, 44,588 portfolio-investment dyad-years, and 7940 public-finance dyad-years, together with country-level panels from 2008 to 2024, we document substantial variation across transition mechanisms. Political distance is negatively associated with total merchandise trade, whereas renewable-goods trade exhibits no systematic negative association. Negative associations are more evident for commercial portfolio holdings and bilateral public renewable-finance commitments. At the country level, green bond issuance increases with trade-policy interventions, while aggregate international public financial commitments and renewable energy deployment remain broadly resilient. These findings indicate that institutional organization, rather than a generic green classification, shapes whether fragmentation constrains, redirects, or leaves transition-related resource allocation largely intact. Overall, geoeconomic fragmentation appears to reorganize the geography and institutional channels of transition finance without systematically slowing aggregate renewable energy deployment.