How Important are Spillovers from Major Emerging Markets?

31 Pages Posted: 9 May 2017

See all articles by Raju Huidrom

Raju Huidrom

World Bank

M. Ayhan Kose

World Bank; Brookings Institution; Centre for Economic Policy Research (CEPR); Australian National University (ANU)

Franziska Ohnsorge

World Bank; Centre for Economic Policy Research (CEPR); Australian National University (ANU) - Crawford School of Public Policy

Multiple version iconThere are 3 versions of this paper

Date Written: May 8, 2017

Abstract

The seven largest emerging market economies - China, India, Brazil, Russia, Mexico, Indonesia, and Turkey - constituted more than one-quarter of global output and more than half of global output growth during 2010-15. These emerging markets, which we call EM7, are also closely integrated with other countries, especially with other emerging and frontier markets. Given their size and integration, growth in EM7 could have significant cross-border spillovers. We provide empirical estimates of these spillovers using a Bayesian vector auto-regression model. We report three main results. First, spillovers from EM7 are sizeable: a 1 percentage point increase in EM7 growth is associated with a 0.9 percentage point increase in growth in other emerging and frontier markets and a 0.6 percentage point increase in world growth at the end of three years. Second, sizeable as they are, spillovers from EM7 are still smaller than those from G7 countries (Group of Seven of advanced economies). Specifically, growth in other emerging and frontier markets, and the global economy would increase by one-half to three times more due to a similarly sized increase in G7 growth. Third, among the EM7, spillovers from China are the largest and permeate globally.

Keywords: Business cycles, spillovers, external shocks, China, EM7, G7

JEL Classification: E32, F20, F42

Suggested Citation

Huidrom, Raju and Kose, M. Ayhan and Ohnsorge, Franziska, How Important are Spillovers from Major Emerging Markets? (May 8, 2017). CAMA Working Paper No. 37/2017 , Available at SSRN: https://ssrn.com/abstract=2965299 or http://dx.doi.org/10.2139/ssrn.2965299

Raju Huidrom

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

M. Ayhan Kose (Contact Author)

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Brookings Institution ( email )

1775 Massachusetts Ave, NW
Washington, DC 20036
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Australian National University (ANU) ( email )

Canberra, Australian Capital Territory 2601
Australia

Franziska Ohnsorge

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Australian National University (ANU) - Crawford School of Public Policy ( email )

ANU College of Asia and the Pacific
J.G. Crawford Building, #132, Lennox Crossing
Canberra, Australian Capital Territory 0200
Australia

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