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Spillovers to Low-Income Countries; Importance of Systemic Emerging Markets


  • Era Dabla-Norris
  • Raphael A Espinoza
  • Sarwat Jahan


This paper documents the expanding economic linkages between low-income countries (LICs) and a narrow group of "Emerging Market leaders" that have become major players in regional and global 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 analyze 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 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 emerging market leaders are the main channels of transmission of foreign shocks.

Suggested Citation

  • Era Dabla-Norris & Raphael A Espinoza & Sarwat Jahan, 2012. "Spillovers to Low-Income Countries; Importance of Systemic Emerging Markets," IMF Working Papers 12/49, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:12/49

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    References listed on IDEAS

    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. 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.
    3. 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.
    4. 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.
    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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    Cited by:

    1. John C Bluedorn & Rupa Duttagupta & Jaime Guajardo & Nkunde Mwase, 2013. "The Growth Comeback in Developing Economies; A New Hope or Back to the Future?," IMF Working Papers 13/132, International Monetary Fund.
    2. Jorge I Canales Kriljenko & Farayi Gwenhamo & Saji Thomas, 2013. "Inward and Outward Spillovers in the SACU Area," IMF Working Papers 13/31, International Monetary Fund.
    3. Gauvin, Ludovic & Rebillard, Cyril, 2013. "Towards Recoupling? Assessing the Impact of a Chinese Hard Landing on Commodity Exporters: Results from Conditional Forecast in a GVAR Model," MPRA Paper 65457, University Library of Munich, Germany.
    4. Werner Kristjanpoller & Josephine E. Olson & Rodolfo I. Salazar, 2016. "Does the commodities boom support the export led growth hypothesis? Evidence from Latin American countries," Latin American Economic Review, Springer;Centro de Investigaciòn y Docencia Económica (CIDE), vol. 25(1), pages 1-13, December.
    5. Almansour, Aseel & Aslam, Aqib & Bluedorn, John & Duttagupta, Rupa, 2015. "How vulnerable are emerging markets to external shocks?," Journal of Policy Modeling, Elsevier, vol. 37(3), pages 460-483.

    More about this item


    Emerging markets; Economic integration; Economic growth; Low-income developing countries; Vector autoregression; Growth Spillovers; Low-Income Countries; Decoupling; Panel Estimate; real gdp; gdp growth; commodity prices; commodity exporters; Economic Growth of Open Economies;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F15 - International Economics - - Trade - - - Economic Integration
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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