Emerging Market Heterogeneity: Insights from Cluster and Taxonomy Analysis
IMF Working Papers, July 15, 2015
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Bibliographic details
- Authors: Zhongxia Zhang, Yuan Gao
- Published: July 15, 2015
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513587622.001
Summary
- This paper studies growth patterns in Emerging Market Economies (EMs) from the perspective on clusters and taxonomies.
- First, it documents developments over the past five decades in EMs and uses a cluster analysis to better understand convergence and the investment-growth nexus.
- Second, it looks at the performance of EMs since 2000 and develops a taxonomy to classify countries according to their factor endowments as well as their real and financial external linkages.
- The taxonomy offers insights on growth dynamics pre and post the global financial crisis.
- Results highlight the high degree of heterogeneity in EMs and the need for more granular and targeted near and long-term policy advice.
Methodology and Scope
- Cluster analysis applied to EMs to examine convergence and the investment-growth nexus.
- Taxonomy developed for EMs since 2000 based on:
- factor endowments,
- real external linkages,
- financial external linkages.
- Comparative assessment of growth dynamics before and after the global financial crisis of 2008-2009.
Key Findings
- High degree of heterogeneity across Emerging Market Economies.
- Cluster analysis sheds light on differences in convergence behavior and the relationship between investment shares and growth outcomes.
- Taxonomy classification provides differentiated insights into growth dynamics pre and post the global financial crisis.
- Emphasis on commodity-related dynamics, including "commodity price booms", "commodity-exporting EMs", and "net commodity export deficit" as relevant features in the analysis.
- Inclusion of production and productivity dimensions, notably "Total factor productivity" and "Terms of trade" influences on growth.
Policy Implications and Recommendations
- Need for more granular and targeted near and long-term policy advice tailored to different EM clusters and taxonomy groups.
- Policy design should account for heterogeneity in:
- factor endowments,
- real and financial external linkages,
- exposure to terms of trade shocks and commodity price booms.
- Consideration of the investment-growth-unemployment nexus in policy frameworks.
Thematic Coverage (as stated)
- Commodities; Consumption; Emerging and frontier financial markets; Financial crises; Global financial crisis of 2008-2009; International trade; National accounts; Production; Terms of trade; Total factor productivity.
Source: IMF Working Paper "Emerging Market Heterogeneity: Insights from Cluster and Taxonomy Analysis" by Zhongxia Zhang and Yuan Gao.