Growth Spillover Dynamics From Crisis to Recovery

IMF Working Papers, September 1, 2011

Source details

Research question: Can positive growth shocks from the faster-growing countries in Europe spill over to the slower growing countries, providing useful tailwinds to their recovery process?
Methodology: Analysis based on a VAR framework.
Principal findings:
- The U.S. and Japan remain the key source of growth spillovers in this recovery.
- France plays an important role for the European crisis countries.
- Germany generates relatively small outward spillovers compared to other systemic countries, notwithstanding the current export-led cyclical upswing.
- Germany likely plays a key role in transmitting and amplifying external growth shocks to the rest of Europe given its more direct exposure to foreign shocks compared to other European countries.
- Spain generated positive spillovers prior to the 2008 - 09 crisis, but is generating negative spillovers in this recovery due to a depressed domestic demand.
- Negative spillovers from the European crisis countries appear limited, consistent with their modest size.

Spillover sources and transmission:
- Systemic non-European economies (U.S. and Japan) are primary external drivers of growth spillovers during the recovery period analyzed.
- Within Europe, France has significant outward influence for crisis-hit countries, while Germany’s role is more as a conduit/amplifier of external shocks rather than a large standalone source of outward spillovers.
Country-specific dynamics:
- Spain’s role shifted from being an important positive spillover origin before 2008 - 09 to generating negative spillovers during the recovery, linked to depressed domestic demand.
- The limited negative spillovers from European crisis countries reflect their modest size in the global economy.

Subject areas: Exports, Financial crises, Financial sector policy and analysis, International trade, Negative spillovers, Production, Production growth, Spillovers
Keywords: Crisis, EMU country, Euro zone, Europe, Exports, financial crisis, GDP growth, Germany, Global, Growth, growth rate, growth shock, Negative spillovers, originating country, Production growth, Recovery, spillover effect, Spillovers, third-country effect, transmission mechanism, WP