How Will Geopolitical Risk Play Its Role in the Global Value Chain?

ABSTRACT The construction of the Global Value Chain (GVC) has benefited the global economy. However, while geopolitical risk has been believed to affect trade and investment volumes, does it truly impact countries' integration into the Global Value Chain? In this article, we develop a theoretical framework to explore the impact of geopolitical risk on GVC participation and how ‘internal’ and ‘external’ forces will moderate it. Then, we construct a geopolitical risk index by applying the bipartite network with a combination of the Fitness and Complexity (FC) algorithm and Matrix‐Estimation exercise. Based on this, we conduct empirical studies based on data encompassing 77 countries from 1995 to 2020. The results show that geopolitical risk indeed hinders the enhancement of GVC participation, but financing convenience actually alleviates such hindrance; meanwhile, political alignment and media attention, as external forces, moderate the negative impact of geopolitical risk on GVC participation, both directly by affecting the geopolitical risk, or by indirectly influencing the alleviating role of financing convenience.