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Joachim Klement, Geo-Economics: The Interplay between Geopolitics, Economics, and Investments (Charlottesville: CFA Institute Research Foundation, 2021)

Reviewed by Zahra Niazi

In ‘Geo-Economics: The Interplay between Geopolitics, Economics, and Investments,’ Joachim Klement delves into the intricate relationship between geopolitical events and the world of finance and investment. Through evidence-based data and analysis, Klement explores how geopolitical trends shape the global economy and financial markets, both in the present and the foreseeable future.

The first part of the book looks at the broader impact of geopolitical events on economic growth and financial markets. Based on the review of the empirical evidence, the author argues that the degree of the impact of geopolitical events tends to vary based on certain factors (pp. 46-47). For instance, wars have a relatively more significant macroeconomic impact on small and developing economies than large and open economies.  Similarly, wars fought on home territory exert a larger negative effect on the stock markets than the wars fought in the territory of an enemy. Likewise, wars with a prolonged build-up phase tend to depress stock markets initially, but this impact is reversed at its onset. On the other hand, sudden wars lead to stock market corrections.

The author makes a similar argument in the context of shocks vis-à-vis natural resources (pp. 55-61). While asserting that oil has become a significant driver of geopolitics in the Twenty-first Century, he states that oil price shocks predominantly lead to a decline in stock market returns, but the effect is relatively minor for well-diversified and larger markets (p. 73). Moreover, while supply shocks have a temporary and small influence on the stock markets and economy, demand shocks, in contrast, have a much larger impact. Aggregate demand shocks, driven by global economic prosperity, lead to an increase in stock market returns and oil prices; and oil-specific demand shocks, triggered by the expected fear of future oil supply shortages, tend to hurt stock markets. In the case of metals, the author concludes that shocks related to metal prices significantly impact just a few economies that are heavily dependent on their export (p.84). Additionally, he believes that although empirical evidence for geopolitical conflict over water is weak, water scarcity can become a source of major conflict in the future.

Klement further shows that despite many criticisms levied against the International Monetary Fund (IMF), structural reforms that are a part of the IMF conditionalities contribute to a boost in the GDP growth of countries (pp. 92-96). The growth effect is increased further if structural reforms in governance are introduced and the labour market is liberalised. Similarly, the liberalisation of trade due to the efforts of General Agreement on Tariffs and Trade (GATT) and World Trade Organisation (WTO) has contributed to increased economic growth in developed and developing countries. He also shows that a decline in globalisation will have a substantial negative influence on economic growth worldwide (p. 114).

The second part of the book evaluates the risks attached to the current and future geopolitical trends. While asserting that China has become an economic superpower, Joachim Klement states that given China’s global integration and the sheer size of its economy, any economic crisis is likely to spread worldwide (p. 141). The greatest effect would be on emerging markets and countries highly dependent on Chinese exports. He further shows that the impact of a severe financial crisis in the country for the rest of the economies would be comparable to the Global Financial Crisis (GFC) of 2008 (p. 142). However, the author maintains that the United States (US) depends much less on Chinese demand and will suffer to a relatively smaller degree in such a scenario (p. 142). He also opines that the US-China rivalry can trigger another Cold War, which would make all the participants in the global economy worse off (p. 172).

On the subject of cybersecurity threats, Klement cautions that they pose an immense challenge for investors and businesses (pp. 175-201). Hence, new technologies, such as those related to blockchain, need to be developed for data protection. He also reflects on the geopolitics of renewable energy and opines that the role of oil in the global economy will significantly diminish by 2050, thus reducing the importance of the oil-producing regions as renewables are gradually catching up (pp. 206-244). The victors will be the businesses and countries with access to new technologies that are important for renewable energy production and taking lead in the energy transition. Hence, the author suggests that major oil importers and exporters need to invest in renewable energy generation to prevent the emergence of geopolitical tensions (p. 244). In the final chapter, Klement discusses climate change as a geopolitical risk (pp. 248-285). According to him, the future economic costs of climate change are likely to be much higher than currently expected. However, the major geopolitical risk linked to climate change is likely to be triggered by its social impacts, as extreme weather events and rising temperatures will become significant drivers of violence, especially in developing and least developed economies.

Financial markets remain critically important in the growth and efficiency of economies, and an understanding of the risks posed to them by geopolitical events is essential. Hence, ‘Geo-Economics’ is an important addition to the literature. Moreover, the author’s approach is unique since he transcends the conventional focus on ‘great-power competition’ to explain future geopolitical risks by analysing the dangers posed by cybersecurity threats, energy transition, and climate change.

However, as a reader from a developing country, it is difficult to agree with some of Klement’s conclusions. For instance, he maintains that globalisation increases inequality within countries but reduces inequality between countries or that the policies of the IMF foster growth in the long run. However, the notion that the IMF conditionality promotes unsustainable forms of development remains firmly endorsed in the developing world. Similarly, while the potential benefits of globalisation are believed to be many, there also exists a widespread perception in the developing world, particularly among the supporters of the dependency school of thought, that economic globalisation has promoted inequality between the core and the periphery countries due, for example, to unequal trade relations or the exchange of raw materials for manufactured goods.

Joachim Klement’s exhaustive research and robust factual evidence form the cornerstone of this book’s strength. It is a compelling choice for readers who value rigorously supported work. With its well-written, comprehensive, and systematically organised content, the book offers invaluable insights to those seeking to expand their knowledge and draw lessons in Geopolitics, Economics, and Investments.

Zahra Niazi is a Research Assistant at the Centre for Aerospace & Security Studies (CASS), Islamabad, Pakistan. She can be reached at:

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