Geoeconomic Connectivity Index

About the Index

The Geoeconomic Connectivity Index measures the extent to which a country is economically linked and integrated into global markets through its trade activity and its structural embeddedness in global trade relationships.

The index is available for almost all countries and is composed of four components that capture both policy-based and outcome-based dimensions of trade connectivity:

Theoretical Foundations: Economic Connectivity

Each sub-index is grounded in standard interpretations of trade liberalization and economic connectivity:
・Applied MFN Tariffs: reflect the baseline level of trade openness under multilateral rules. Lower MFN tariffs indicate easier, and possibly more uniform market access for all trading partners.

・Trade Openness: captures trade integration outcomes. In the index, this is measured as the log of exports plus imports over GDP, and it reflects the intensity of a country’s participation in global trade while accounting for diminishing marginal returns at high levels of openness.

・FTAs and PTAs: reflect institutionalized economic connectivity. A higher number of agreements typically signals greater institutional engagement, which is associated with deeper integration, expanded preferential access, and stronger regulatory and institutional cooperation. The logarithmic transformation captures diminishing marginal returns to additional agreements, considering that each extra agreement adds less trade connectivity once a country is already highly embedded in preferential trade networks.

・Tariff Trend: does not measure openness directly, but captures the direction of trade policy over time and influences the index as a bounded adjustment rather than a core structural component. Recent tariff increases (in the span of 10 years) modestly reduce effective trade connectivity, while tariff decreases generate a small positive adjustment.

Taken together, these indicators provide an overview of how structurally open, institutionally connected, and effectively accessible a country’s trade regime is.

Direction and Interpretation of the Components

1. Applied MFN Tariff: lower values represent greater trade liberalization, higher values represent more protection

2. Trade Openness: higher values represent stronger integration into global trade markets, lower values represent lower trade activity in global markets

3. Number of Active FTAs and PTAs: higher values represent more institutionalized trade integration and mediated market access (with diminishing marginal impact due to log transformation), lower values represent more institutional isolation from a trade perspective

4. Tariff Trend: higher values represent increasing trade restrictiveness and therefore generate a stronger downward adjustment on effective connectivity, while lower values represent trade liberalization trends over time and positively influence effective connectivity

Change in direction (sign) of Applied MFN Tariff: multiplying by −1 → higher values mean higher liberalization for all positively-oriented components.

Standardization of Variables onto a Common Scale

Min–max normalization is a rescaling method to transform variables measured in different units onto a common and bounded scale (between 0 and 1). For each sub-index, the observed minimum value across countries will be 0, and the observed maximum value will be 1, and all other observations are scaled proportionally in between. This method allows percentage values (applied MFN tariffs) and count-based indicators (number of active FTAs and PTAs) to be combined within a common structural index. Changes in tariffs over time are treated separately as a directional adjustment rather than as a fully normalized structural component. Overall, structural components are normalized and aggregated, while tariff trend is scaled and added.

All sub-components are normalized prior to aggregation. The final index is retained in its analytical scale. A rescaled 0–100 version of the final index is produced exclusively for presentation and visualization purposes.

Formula (per each core index)

for a given indicator X and country i:
Xi norm=Xi−min(X) / max(X)−min(X)

The interpretation of each sub-index will be:

1. Applied MFN Tariff (inverted and normalized)

Interpretation from the indispensability perspective: with lower values, access to this market is structurally more costly without preferences or agreements in place.

2. Trade Openness (log-transformed and normalized)

Interpretation from the indispensability perspective: higher values reflect deeper participation in global trade flows, increasing the systemic importance of market access.

3. Number of FTAs/PTAs (normalized)

Interpretation from the indispensability perspective: access is increasingly mediated by negotiated, selective agreements → higher institutional indispensability.

4. Tariff Trend (scaled, adjustment component)

Higher values generate a stronger downward adjustment to the final index, reflecting the directional impact of increasing trade barriers on effective connectivity.

From Geoeconomic Connectivity to Geoeconomic Indispensability

Geoeconomic indispensability refers to the extent to which access to a country’s market is structurally valuable and difficult to substitute, based on how costly, policy-mediated, and institutionally conditioned the market access is.

The index distinguishes between structural trade connectivity (capturing baseline openness and institutional integration) and effective trade connectivity (which adjusts structural connectivity through a bounded, additive modification reflecting recent trade policy direction).

By log-transforming both trade openness and preferential agreements, the index explicitly incorporates diminishing returns to scale in economic integration, preventing highly connected economies from automatically dominating the distribution.

In an environment characterized by geopolitical fragmentation and the increasing use of trade policy for strategic purposes, openness is no longer uniform or purely liberalizing. Instead, many countries are pursuing strategies that combine selective openness with greater control over market access. Geoeconomic indispensability emerges when countries appear less open along some dimensions (such as MFN tariffs), while becoming more institutionally connected through agreements, making access to their markets more valuable, selective, and difficult to substitute.

Accordingly, variation in the final index should be interpreted primarily as reflecting differences in long-run trade embeddedness, with recent tariff liberalization or tightening introducing only little directional variation.

Possible interpretations of sub-indexes:

Geoeconomic Connectivity Index

Sub-index: Applied MFN Tariff

Interpretation from the indispensability perspective: with lower values, access to this market is structurally more costly without preferences or agreements in place.

Sub-index: Trade Openness

Interpretation from the indispensability perspective: higher values reflect deeper participation in global trade flows, increasing the systemic importance of market access.

Sub-index: Number of FTAs/PTAs

Interpretation from the indispensability perspective: access is increasingly mediated by negotiated, selective agreements → higher institutional indispensability.

Sub-index: Tariff Trends

Higher values generate a stronger downward adjustment to the final index, reflecting the directional impact of increasing trade barriers on effective connectivity.

Additional Indicators: Strategic Selectivity

Strategic selectivity can be defined as the extent to which a country differentiates market access across sectors that are economically or geopolitically strategic.

While the Trade Connectivity Index captures the overall structural embeddedness of countries in global trade, it does not reflect any sectoral differentiation in market access. In practice, trade policy is increasingly characterized by selective liberalization, particularly in sectors considered economically or geopolitically strategic, such as energy or semiconductors.

To capture this dimension, this analysis incorporates complementary indicators of strategic and sectoral selectivity, based on tariff peaks and tariff deviation from the average tariff rates within predefined strategic sectors. These indicators reflect the extent to which countries concentrate trade restrictiveness in specific sectors, even when overall trade connectivity remains high.

This dimension does not necessarily follow the trends currently included in the final index: a country could be highly connected, but at the same time highly selective when it comes to its strategic sectors. The extent to which a country restricts or differentiates its trade policy tied to strategic products and sectors should be considered as a lens rather than a pillar of the Geoeconomic Connectivity Index itself.

Strategic sectors considered:

1. Advanced Digital Technologies: semiconductors, microelectronics, AI systems, cloud and digital infrastructure
2. Critical Raw Materials: rare earths, lithium, cobalt, nickel, graphite, and other essential minerals
3. Energy and Climate Technologies: oil and gas, nuclear, renewables, hydrogen, batteries
4. Health and Biotechnology: pharmaceuticals, pharmaceutical ingredients, vaccines, biotech manufacturing
5. Advanced Industrial Manufacturing: robotics, aerospace, defense equipment

These sectors share a set of economic features that explain their classification as strategic sectors:

– Systemic essentiality and central position in value chains: they provide inputs that are critical for the functioning of multiple downstream industries and for macroeconomic stability (intermediate goods)
– Low short-term substitutability: their outputs cannot be easily replaced technologically or geographically in the event of disruption (as a consequence, low price elasticity of demand in the short term)
– High entry barriers and capital intensity: production requires large fixed investments, advanced technological capabilities and skills
– Supply concentration and chokepoint potential: production or processing is often geographically concentrated, increasing vulnerability and potential leverage (limited competition and possible higher price volatility)
– Strong technological and productivity spillovers: they generate innovation externalities that influence competitiveness and economic power.

Methodology and guiding research question:

RQ: Are strategic sectors protected at tariff levels above the national average?

To assess whether protection is strategically allocated, the analysis compares the national simple average MFN applied tariff on all non-agricultural products with the average MFN tariff applied to the predefined strategic sectors. A positive deviation of sectoral tariffs from the national mean indicates a structural bias toward strategic protection in those sectors.

Indicators:

Interpretation of results:

Sectoral tariff deviations measure the relative difference between the mean applied MFN tariff in each strategic sector and the country’s overall non-agricultural MFN average, thereby capturing sector-specific bias within the tariff lines.

– Positive deviation: the sector is protected above the national baseline, suggesting higher protection of the sector
– Negative deviation: the sector is relatively more liberalized than the country’s general tariff regime

Because the indicators rely on MFN applied rates, these reflect non-discriminatory protection embedded in the structural tariff schedule, rather than partner-specific discrimination, or preferential arrangements. The variation across sectors is therefore reflecting the different economic functions and political economies of these industries:

– defense-related goods often showcase positive deviations because they are closely linked to sovereignty, domestic industrial capacity, and national security
– Sectors such as advanced digital technologies, critical raw materials and energy technologies frequently have negative deviations. This pattern is in line with their role as upstream inputs within global value chains. In such sectors, strategic control can be more commonly exercised through non-tariff instruments (e.g. export controls), rather than through MFN tariff protection.

The fact that several strategic sectors display negative or neutral MFN deviations, while defense displays positive deviations, reflects a core difference in how states exercise strategic control. MFN tariffs are by definition non-discriminatory, hence they apply equally to all trading partners, unless there are preferential agreements in place. In sectors where governments wish to maintain flexibility over who benefits from access (e.g. semiconductors, rare earths, dual-use technologies), tariffs are not the most effective tool. In this case, selective instruments might be used to differentiate across partners, such as export controls sanctions, preferential or free trade agreements.

Defense goods remain embedded in traditional protectionist logic as they are more domestically oriented, politically sensitive, and less integrated into global value chains.

Annex 1: HS6 codes of strategic sectors’ products (PDF)