The Impact of Geopolitical Risk on Abnormal Cross-Border Capital Flows
DOI:
https://doi.org/10.54097/h8kh0r02Keywords:
Geopolitical risk, Abnormal capital flows, Sanctions, Financial decouplingAbstract
Geopolitical risk has become an important factor affecting global financial stability and a key source of risk for cross-border capital movements. When geopolitical tensions intensify, international capital flows may exhibit abnormal patterns, including surges, sudden stops, flight, and retrenchment. This paper develops a conceptual analysis of the channels through which geopolitical risk influences these extreme flow episodes. Four transmission mechanisms are identified: uncertainty and real options, sanctions and asset freeze, safe haven rebalancing, and financial decoupling. Each mechanism is linked to specific flow abnormalities, temporal characteristics, and degrees of reversibility. The mechanisms are organized into a classification, and illustrative episodes are provided alongside policy considerations.
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