China's Increasing Global Influence: Changes in International Growth Spillovers

In the light of China's increasing importance in the global economy, we investigate changes in the international spillovers of quarterly GDP growth rates since 1975 in a system consisting of the USA, Euro area and China. Utilizing an iterative procedure for detecting structural breaks in the VAR coefficients and covariance matrix, we find dynamics to be unchanged, but volatilities change in 1983, 1993 and 2007, with cross-country correlations markedly increasing around the time of the Great Recession. This recent period consequently shows increased international growth spillovers, measured through generalized impulse responses. Although largely isolated from the other large economies until 2007, growth in China is subsequently important for both the US and the Euro area. At the same time, the volatility of China's growth becomes more closely associated with these other large economies, especially the US in terms of net volatility spillovers.