Strategic hedging is a form of behavior used by states wanting to improve their competitiveness while at the same time avoiding direct confrontation with main contenders. It is an appealing option for states facing uncertainty due to structural changes in the international system such as the present unipolarity giving way to a process of power diffusion. Under such conditions, strategic hedging becomes an attractive alternative for other strategies like balancing, bandwagoning, and buckpassing. Especially for second-tier states, it becomes a behavior of choice vis-à-vis the system leader.
The strategic hedging research program, however, is in its early stages. Previous research on strategic hedging developed without a clear account of national hedging capabilities, making it difficult to understand key reasons for successful hedging in some cases and its failure in others. This study represents the first attempt to measure the core components of a state’s strategic hedging capability and as such provides a comparative snapshot of those components by means of a composite index.
The index comprises three core dimensions (economic capability, military power and decision-making capability), which are broken down into six sub-indicators: gross domestic product (GDP), foreign exchange and gold reserves, government debt, military expenditure, growth of military arsenal, and democracy. Because second-tier states in the international system are likely to have the greatest incentives to engage in strategic hedging, the composite index developed in this study is applied to a sample of seven leading second-tier states in a comparative case study.
The results indicate that for states to score high on strategic hedging capability, they need to score high on all core dimensions. Negligence of one of the components leads to a significant decline in total hedging capacity. Such results show why China tops the strategic hedging capability index and scores significantly higher than the other second-tier states.