Global Financial Transmission into Sub-Saharan Africa – A Global Vector Autoregression Analysis

Abstract

Sub-Saharan African countries are exposed to spillovers from global financial variables, but the impact on economic activity is more significant in more financially developed economies. Generalized impulse responses from a GVAR exercise demonstrate how the CBOE volatility index (VIX) and credit conditions around the globe impact a subset of sub-Saharan African economies and regions. The estimated relationships suggest that the effect of global uncertainty is more pervasive in exports, with the impact on economic and lending activities being mixed. The channels of transmission include the effects of global financial variables on commodity prices and on trading-partner’s macroeconomic and financial variables. The analysis suggests that shocks to credit conditions in the euro area and the U.S. have not significantly affected local lending conditions or economic activity in sub-Saharan Africa during 1991-2011, except perhaps in South Africa.

Keywords: Spillovers, Sub-Saharan Africa, External shocks, Economic growth, Cross country analysis, Vector autoregression, Econometric models, GVAR, Financial Transmission, prices, output, commodity, equity, commodity prices, exchange, equity prices, financial crisis, financial markets, volatility, investment, investor, trade, global financial markets, global economy, interest, advanced economies, shares, global investor, low-income countries, commodities, capital market developments, economic developments, international capital, capital flows, financial sector development, foreign investors, interest rates, foreign direct investment, emerging markets, monetary policy, global equity, purchasing power,

JEL Classification: C33, E17, F47