Waves of uncertainty: Time-varying spillovers of China’s economic policies on belt and road economies

In recent years, rising external economic policy uncertainty (EPU) has exerted significant influence on the economic and financial stability of emerging markets. Using quarterly macroeconomic data from 154 economies along the Belt and Road Initiative (BRI) between 2013 and 2022, this paper applies a K-means clustering approach to classify these economies into four groups. It constructs a TVP-SV-FAVAR model to systematically examine the dynamic spillover effects of China’s EPU (CNEPU) on BRI countries and regions from four dimensions: production, consumption, investment, and trade. The main findings are as follows: (1) CNEPU generates significant spillover effects on BRI economies, with pronounced heterogeneity driven by differences in macroeconomic fundamentals and the degree of economic linkages with China. (2) The spillover effects demonstrate both persistence and time variation: in the short run, they spread rapidly through market expectations and capital flows, whereas in the long run, their magnitude diminishes but their duration remains substantial. (3) Mechanism tests reveal that policy uncertainty transmits through both financial markets and economic fundamentals, with heterogeneous impacts arising from fiscal, monetary, trade, and exchange rate policy uncertainty. These findings carry important implications for emerging economies in formulating targeted policies to strengthen their resilience against external shocks.