Business Cycle Transmission from BRICS to Developing Countries, Some New Evidence

Abstract

Our motivation of running this research is the increasing importance of BRICS as a dynamic and emerging power with a growing role in global affairs. The topic of this research in recent years is extremely important given the progress of the international economy and the growing role of the BRICS into the world economical scene, particularly for the less developed countries. The BRICS members are all developing or newly industrialized countries but are distinguished (at least the original four) by their large, fast-growing economies and, more recently, by their significant influence on regional and global affairs. This paper examines the role of emerging economies of Brazil, China, India, and Russia, as the new regional economic drivers for the less developed countries. To our knowledge, the case of the role of BRICS as dynamic emerging economies has not been entirely explored, so the target of our research is to contribute to this field. We employ a Global Vector Autoregressive (GVAR) model to investigate the extent of business cycle transmission from BRICS to LDCs. Our research follows Samake and Yang (2011) work with a different sample of countries and different time span. Our sample includes Brazil, Russia, China, India, 10 EU countries, the USA, and 49 emerging and developing economies from Asia, Africa, Latin America, and Commonwealth of Independent States, covering the period 2000–2014. Summarizing the results, we can notice that the BRICS doesn’t seem to play any significant role as economic leaders for the less income countries of that region, neither do they seem to have strong links among them. The low bilateral trade weights between the core economies and their counterparts in Asia and Africa, LA (Latin America), and CIS (Commonwealth of Independent States) could be a possible explanation for the insignificant impact of a positive RGDP shock in the core economies. That is, the transmission via trade is trivial. The trade links are not strong enough to trigger transmission shock to the developing countries of Asia and Africa, Latin America, and CIS.