Thesis title: Empirical Essays on Geopolitical Risk: Insurance, Firms and Energy
Globalization shaped the world economy for much of the past three decades, but the
rise of geopolitical risk since the 2010s has accelerated geoeconomic fragmentation,
challenging that baseline. This thesis studies how geopolitical risk propagates through
the real economy and financial markets, closing evidence gaps in three domains: insurance,
commodities, and non-financial firms.
First, by introducing novel methodologies in the insurance literature, such as local
projections, we show that geopolitical-risk shocks raise premiums and strengthen technical
reserves, consistent with both stronger demand and tighter underwriting, while
simultaneously weakening solvency and market-based equity metrics, revealing distinct
underwriting and market transmission channels at work. Second, identifying producerside
geopolitical shocks using a novel granular instrumental variable approach, in oil, gas
and critical minerals markets, we find that shocks lift benchmark prices and pass through
to global inflation, highlighting the importance of the supply channel for the transmission
of producers geopolitical risk. Third, to capture the revenue transmission channel for
non-financial firms, we build an innovative firm-level geopolitical risk exposure index by
combining firms’ geographical distribution of revenues and the geopolitical risk of their
destination markets, finding that greater firm-specific exposure depress investment, sales
and financial performance and shapes firms’ operational strategies.
Taken together, this thesis focuses on the multi-channel transmission of geopolitical
risk across insurance, commodity, and firm outcomes, advancing the literature with
new identification strategies and underscoring the macro-financial importance of these
mechanisms for policy and research.