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Spillovers to Low-Income Countries: Importance of Systemic Emerging Markets

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  • Era Dabla-Norris
  • Raphael A. Espinoza
  • Sarwat Jahan

Abstract

This paper documents the expanding economic linkages between low-income countries (LICs) and a narrow group of "Emerging Market leaders" that have become major players in regional and global trade and financial flows. VAR models show that these linkages have increased the share of growth volatility that can be attributed to foreign shocks in LICs. Dynamic panel models further analyze the impact of LIC trade orientation and production structure on the sensitivity to foreign shocks. The empirical results demonstrate that the elasticity of growth to trading partners' growth is high for LICs in Asia, Latin America and the Caribbean, and Europe and Central Asia. However, for commodity-exporting LICs in Sub-Saharan Africa and the Middle East, terms of trade shocks and demand from the emerging market leaders are the main channels of transmission of foreign shocks.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/49.

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Length: 27
Date of creation: 01 Feb 2012
Date of revision:
Handle: RePEc:imf:imfwpa:12/49

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Related research

Keywords: Economic integration; Economic growth; Emerging markets; Low-income developing countries;

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References

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  1. Çigdem Akin & M. Ayhan Kose, 2007. "Changing Nature of North-South Linkages: Stylized Facts and Explanations," IMF Working Papers 07/280, International Monetary Fund.
  2. Jaime Espinosa-Bowen & Nadeem Ilahi & Fahad Alturki, 2009. "How Russia Affects the Neighborhood: Trade, Financial, and Remittance Channels," IMF Working Papers 09/277, International Monetary Fund.
  3. Ricardo Hausmann & Alberto Alesina & Rudolf Hommes & Ernesto H. Stein, 1998. "Budget Institutions and Fiscal Performance in Latin America," Research Department Publications 4160, Inter-American Development Bank, Research Department.
  4. Alfaro, Laura & Chanda, Areendam & Kalemli-Ozcan, Sebnem & Sayek, Selin, 2004. "FDI and economic growth: the role of local financial markets," Journal of International Economics, Elsevier, vol. 64(1), pages 89-112, October.
  5. Giannone, Domenico & Lenza, Michele & Reichlin, Lucrezia, 2008. "Explaining the Great Moderation: it is not the shocks," Working Paper Series 0865, European Central Bank.
  6. International Monetary Fund, 2009. "Spillovers from the Rest of the World into Sub-Saharan African Countries," IMF Working Papers 09/155, International Monetary Fund.
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Cited by:
  1. John C Bluedorn & Rupa Duttagupta & Jaime Guajardo & Nkunde Mwase, 2013. "The Growth Comeback in Developing Economies: A New Hope or Back to the Future?," IMF Working Papers 13/132, International Monetary Fund.
  2. Jorge Iván Canales Kriljenko & Farayi Gwenhamo & Saji Thomas, 2013. "Inward and Outward Spillovers in the SACU Area," IMF Working Papers 13/31, International Monetary Fund.

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