Low-Income Countries' BRIC Linkage: Are there Growth Spillovers?
IMF Working Papers, November 1, 2011
Source details
- Canonical URL
- Low-Income Countries' BRIC Linkage: Are there Growth Spillovers?
Other formats
Bibliographic details
- Authors: Issouf Samaké, Yongzheng Yang
- Published: November 1, 2011
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781463924669.001
Summary
- Trade and financial ties between low-income countries (LICs) and Brazil, Russia, India, and China (BRICs) have expanded rapidly in recent years, creating potential for growth spillovers from BRICs to LICs.
- The study employs a global vector autoregression (GVAR) model to investigate business cycle transmission from BRICs to LICs through direct and indirect channels.
- Direct channels examined: FDI, trade, productivity, exchange rates.
- Indirect channels examined: global commodity prices, demand, and interest rates.
- Estimation results:
- There are significant direct spillovers.
- Indirect spillovers also matter in many cases.
- Conclusion: Growing LIC-BRIC ties have significantly helped alleviate the adverse impact of the recent global financial crisis on LIC economies.
Methodology
- Model: Global vector autoregression (GVAR).
- Transmission channels explicitly modeled:
- Direct: FDI, trade, productivity, exchange rates.
- Indirect: global commodity prices, global demand, global interest rates.
- Focus: Business cycle transmission from BRICs to LICs.
Key findings
- Significant direct growth spillovers from BRICs to LICs via FDI, trade, productivity, and exchange rate channels.
- Indirect channels—global commodity prices, demand, and interest rates—also produce spillovers in many cases.
- Empirical results indicate that intensified LIC-BRIC linkages played a material role in mitigating the adverse effects of the recent global financial crisis on LIC output.
Policy implications and relevance
- Strengthened trade and financial ties with BRICs can provide stabilizing external demand and investment channels for LICs.
- Policymakers in LICs should consider the role of both direct and indirect channels (FDI, trade, productivity, exchange rates, commodity prices, global demand, interest rates) when assessing vulnerability and designing macroeconomic responses to external shocks.
- The findings underscore the importance of monitoring evolving global linkages with major emerging economies for LIC macroeconomic policy formulation.