The spillover effects of Chinese economy on Southeast Asia and Oceania

The slowdown of economy and widening of domestic imbalances in China bothers economists and politicians across the globe. The effects of a Chinese transition to a new growth model for other countries are uncertain. We quantify them by estimating the influence of a negative output shock in China on a number of different economies. We concentrate on China’s neighbouring countries. We compare the results from the Global VAR model and from the Bayesian VAR models that include Chinese variables as endogenous. Also we search for determinants of Chinese spillovers for the global economy. To this end, having a large number of factors potentially explaining differences in responses compared to the number of observations, we use Bayesian model averaging. We find that spillovers are stronger to economies with less flexible exchange rates, a higher share of manufacturing in gross value added and to economies which are larger.