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China's emergence in the world economy and business cycles in Latin America

Author

Listed:
  • Cesa-Bianchi, Ambrogio
  • Pesaran, M. Hashem
  • Rebucci, Alessandro
  • Xu, Tengteng

Abstract

This paper investigates how changes in trade linkages between China, Latin America, and the rest of the world have altered the transmission of international business cycles to Latin America. Evidence based on a GVAR model for five large Latin American economies shows that the long-term impact of a China GDP shock on the typical Latin American economy has increased by three times since the mid-1990s, while the longterm impact of a US GDP shock has halved, while the transmission of shocks to LatinAmerica and the rest of emerging Asia GDP (excluding China and India) has not changed. These changes owe more changes in China´s impact on Latin America´s traditional and largest trading partners than to increased direct bilateral trade linkages boosted by the decade-long commodity price boom. These findings have important implications for both Latin America and the international business cycle.
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Suggested Citation

  • Cesa-Bianchi, Ambrogio & Pesaran, M. Hashem & Rebucci, Alessandro & Xu, Tengteng, 2012. "China's emergence in the world economy and business cycles in Latin America," LSE Research Online Documents on Economics 123050, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:123050
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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean

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