This paper studies how geoeconomic shocks affect bilateral trade, and what they imply for the position of a small open economy in global value chains. It combines monthly UN Comtrade imports at the 4-digit HS level for 2015–2024 with measures of import and export restrictions from the Global Trade Alert database and the country-level geopolitical risk index of Caldara and Iacoviello (2022). The estimation uses a two-stage structural gravity model: a first stage estimated by Poisson pseudo-maximum likelihood with reporter-partner-product, reporter-product-time and partner-product-time fixed effects, and a second stage relating the recovered multilateral resistance components to geopolitical risk.
Direct policy restrictions carry the larger effect: an additional import restriction is associated with roughly 16 percent lower bilateral trade and an additional export restriction with roughly 3 percent. Geopolitical risk in the partner country is associated with a more moderate reduction, and the association is about forty percent larger on the subsample of structurally vulnerable products, defined by concentrated sourcing, reliance on non-EU suppliers, and limited substitutability. Such products account for a stable 28–30 percent of Finland’s goods imports over the period.
