Drivers of growth spillovers

This paper investigates the drivers of (real per capita income) growth spillovers across 85 countries based on the implications of a multi-country growth model. Pairwise growth spillovers (for 7140 country pairs) covering the period of 1961–2022 are estimated by using the local projection method. The results show that growth spillovers are statistically significant for 97 % of the advanced economy pairs, whereas this ratio reduces to 56 % for spillovers from advanced economies to emerging markets and developing economies. A secondary investigation based on the Heckman selection model is used to identify the drivers of growth spillovers across country pairs, where the existence of statistically-significant growth spillovers is shown to be connected to the proximity between countries. The size of growth spillovers is further shown to increase (decrease) with the initial human capital, trade openness, and GATT membership (inflation, government size, and financial depth) of the spillover destination country in 1960. Subsample analyses additionally show that these drivers of growth spillovers have been more effective during the second half of the sample period, coinciding with the post-Uruguay Round era. Finally, the drivers of growth spillovers are connected to alternative policy implications, including those related to fiscal policy, trade policy, development policy, monetary policy, and macroprudential policy.