Economic, Political and Cultural Proximity and Growth Propagation: A Network Model with Endogenous Proximity Matrix

The growth model at the Sala-i-Martin (1991 and 1992) fashion is revisited in order to take into account the interdependence of growth across countries based on the idea that outcomes are subject to mutual influence through a set of geographical, cultural, economic and financial determinants that are likely to condition growth propagation between economies through the world. A spatial lag like model is estimated for a sample of 146 countries from 1995 to 2009 in which the adjacency matrix is endogenous and set conditional of a set of bilateral variables describing the multidimensional aspect of the proximity between countries. MCMC estimation results show several prominent key feature of the growth propagation process through the countries’ sample; as 17 MENA countries are in the sample, it was possible to characterize a network of spillover for these countries. One of the most important results is that trade and cultural proximity play a predominant role in growth spillover between countries. Clusters of high spillover effect are not only identified, but also their determinants are clearly assessed along with the importance of their impact. Distinction can be made between reciprocal spillover outcome propagation which identify a high performance cluster and asymmetric propagation witnessing the presence of a hotspot effect.