Trade Shock Transmission: A Study of Selected African Economies, the BRIC and the Rest of the Global Economy

This study investigated trade shock transmission between Africa, the BRIC and the rest of the global economy with a view to understanding the likely disposition of African economies towards trade shocks. The study extended the network approach of Diebold and Yilmaz (2009) by constructing generalized trade linkage measures at various degrees of aggregation. The results indicate that the trade linkage between Africa and the rest of the global economy is quite substantial, with the total trade linkage index having an average value of 87%. We find also that China, USA, UK, Japan, EU, and Canada dominate Africa’s trade and therefore have the potential to spread trade shocks to it. The results further indicate that apart from the BRIC, other regional trading blocs such as Asia, the Americas, and Europe play influential roles in Africa’s trade. Overall, the findings show that African economies are predominantly net receivers of trade shocks originating from the aforementioned dominant sources. The study therefore concludes that the patterns of cross-country trade shock spillovers obtained in this study would likely influence Africa’s move from globalization to regional integration or multi-polarity in the years to come.