Do political parties shape global risk? Evidence from United States presidential leadership and geopolitical volatility

This study investigates whether the political party controlling the U.S. presidency systematically influences the country's geopolitical risk profile. Using monthly data from 1946 to 2025, we employ a vector autoregressive framework to analyze the dynamic, contemporaneous, and conditional effects of presidential party affiliation on U.S. geopolitical risk. Our results reveal no significant direct effect of presidential party identity on geopolitical risk, suggesting broad institutional continuity in U.S. foreign policy. However, we uncover a statistically significant interaction effect: geopolitical risk rises during recessionary periods under Republican administrations, but remains stable under Democratic ones. This asymmetry supports theoretical arguments from the public choice and diversionary conflict literatures, indicating that foreign policy assertiveness may intensify when political ideology intersects with economic stress. In addition, we find that U.S. geopolitical risk is significantly influenced by international spillovers from the geopolitical risks of key allies and rivals. Our findings contribute to the literature on the political economy of foreign policy and provide valuable insights for policymakers, investors, and international observers seeking to understand how domestic politics, economic cycles, and external shocks interact to shape global risk dynamics.