How Important are Spillovers from Major Emerging Markets?

The seven largest emerging market economies - China, India, Brazil, Russia, Mexico,
Indonesia, and Turkey - constituted more than one-quarter of global output and more
than half of global output growth during 2010-15. These emerging markets, which we
call EM7, are also closely integrated with other countries, especially with other emerging
and frontier markets. Given their size and integration, growth in EM7 could have
significant cross-border spillovers. We provide empirical estimates of these spillovers
using a Bayesian vector autoregression model. We report three main results. First,
spillovers from EM7 are sizeable: a 1 percentage point increase in EM7 growth is
associated with a 0.9 percentage point increase in growth in other emerging and frontier
markets and a 0.6 percentage point increase in world growth at the end of three years.
Second, sizeable as they are, spillovers from EM7 are still smaller than those from G7
countries (Group of Seven of advanced economies). Specifically, growth in other
emerging and frontier markets, and the global economy would increase by one-half to
three times more due to a similarly sized increase in G7 growth. Third, among the EM7,
spillovers from China are the largest and permeate globally.