Events at CERGE-EI

Timothy Meyer

University of Bonn, Germany

Authors: Timothy Meyer and Nicolas Wesseler

Abstract: Hegemonic powers use economic tools to influence the geopolitical alignment of third countries. We develop a bargaining model in which two competing hegemons use direct payments (carrots) and economic threats (sticks) to influence third countries. Guided by the model, we measure carrots and sticks using historical data from the Cold War. We use our measures to empirically estimate the effects of carrots and sticks on geopolitical alignment. These tools create political alignment, but are expensive. We combine the model with the empirical estimates to compute the geopolitical benefit-cost ratio of foreign aid and evaluate the consequences of the USAID shutdown for the modern U.S.–China competition.

Keywords: Geoeconomics, Hegemonic Competition, Economic Statecraft, Cold War
JEL-Codes: F02, F12, F35, F51, N10

Full Text: Hegemonic Competition with Carrots and Sticks