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Spillovers to low-income countries: importance of systemic emerging markets

Listed author(s):
  • Era Dabla-Norris
  • Raphael Espinoza
  • Sarwat Jahan

This article documents the expanding economic linkages between low-income countries (LICs) and a narrow group of 'Emerging Market (EM) leaders' that have become major players in international 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 analyse 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 three out of the five regions: 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 EM leaders are the main channels of transmission of foreign shocks

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File URL: http://hdl.handle.net/10.1080/00036846.2015.1058903
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Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 47 (2015)
Issue (Month): 53 (November)
Pages: 5707-5725

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Handle: RePEc:taf:applec:v:47:y:2015:i:53:p:5707-5725
DOI: 10.1080/00036846.2015.1058903
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  1. Domenico Giannone & Michele Lenza & Lucrezia Reichlin, 2008. "Explaining The Great Moderation: It Is Not The Shocks," Journal of the European Economic Association, MIT Press, vol. 6(2-3), pages 621-633, 04-05.
  2. Alesina, Alberto & Hausmann, Ricardo & Hommes, Rudolf & Stein, Ernesto, 1999. "Budget institutions and fiscal performance in Latin America," Journal of Development Economics, Elsevier, vol. 59(2), pages 253-273, August.
  3. 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.
  4. AkIn, Cigdem & Kose, M. Ayhan, 2008. "Changing nature of North-South linkages: Stylized facts and explanations," Journal of Asian Economics, Elsevier, vol. 19(1), pages 1-28, February.
  5. International Monetary Fund, 2009. "Spillovers From the Rest of the World Into Sub-Saharan African Countries," IMF Working Papers 09/155, International Monetary Fund.
  6. 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.
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