On the exposure of the BRIC countries to global economic shocks

Abstract

The financial crisis led to a deep recession in many industrial countries. While large emerging countries recovered relatively quickly, their performance deteriorated in recent years, despite the modest recovery in advanced economies. The higher divergence of business cycles is closely linked to the Chinese economy. During the crisis, the Chinese fiscal stimulus prevented an abrupt decline in GDP growth not only in that country, but also in resource‐rich economies. Due to lower commodity demand, the environment became more challenging for many emerging markets in recent years. This view is supported by Bayesian structural VARs specified for the individual BRIC (Brazil, Russia, India and China) countries. The results reveal a strong impact of the international economy on GDP growth. However, in contrast to the other countries, China plays a crucial role in determining global trade and oil prices. Therefore, the Chinese economy exerts significant spillovers to the other countries under analysis. The change in the Chinese growth strategy puts additional reform pressure especially in countries with abundant natural resources.

The effects of external shocks on the business cycle in China: A structural change perspective

“…Moreover, we use established methods to concentrate the GDP growth dynamics of the trading partner countries in a single GDP measure, and hence, our approach is not restricted to the estimation of bilateral models (in the sense of two‐country VAR models.) We are also confident that our estimations are able to mirror the underlying economic relationships as we are able to reproduce main features of related studies (see Belke et al., 2018; Erten, 2012; Utlaut & van Roye, 2010).…”

“…The fast integration of China and the other BRIC countries in the world economy since the 1990s has been facilitated by favorable global economic circumstances: Strong foreign demand supported by trade liberalizations, such as for instance China's WTO entry in 2001, decreasing global interest rates and increases in commodity prices (Belke et al., 2018; Cubeddu et al, 2014). From the early 1990s until the financial crisis China's share of the world economy has more than doubled (see Figure in the Online Appendix) 1…”

“…A declining working age‐population additionally puts reform pressure on China. Hence, China is wise to pursue structural reforms to ensure sustainable economic growth under challenging global conditions (Belke et al., 2018; Didier et al., 2015). 2…”

“…Furthermore, we collect 3‐month interbank interest rates to mirror liquidity conditions in the banking sectors of major trading partner countries. These variables can be understood as proxies to account for the global risk appetite or aversion (VIX) and global liquidity conditions (I_TP), which impact capital flows (Belke et al., 2018). Alternatively economic policy uncertainty (Baker et al, 2015) as, for instance, used in Belke and Osowski (2019) could be considered.…”

Financial Crises and Key Economic Sectors of China and India: A Comparative Review of 1991-2010

“…China and other resource-rich economies prevented the abrupt decline in GDP but the situation turned more challenging lately. The findings for individual BRICS economies indicated that China has significant influence on other economies; the spill over effects from China are more significant for natural resource rich economies (Belke et al, 2018).…”