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Issouf Samaké and Yongzheng Yang
Trade and financial ties between low-income countries (LICs) and Brazil, Russia, India, and China (BRICs) have expanded rapidly in recent years. This gives rise to the potential for growth to spill over from the latter to the former. We employ a global vector autoregression (GVAR) model to investigate the extent of business cycle transmission from BRICs to LICs through both direct (FDI, trade, productivity, exchange rates) and indirect (global commodity prices, demand, and interest rates) channels. The estimation results show that there are significant direct spillovers while indirect spillovers also matters in many cases. Based on these results, we show that growing LIC-BRIC ties have significantly helped alleviate the adverse impact of the recent global financial crisis on LIC economies.
International Monetary Fund

from BRICs have helped cushion LICs from the impact of the recent global financial crisis. Beyond their impact on short-run economic cycles, BRICs (particularly China) could have a profound impact on LIC economies in the long run . Over time, prices of manufactured products are likely to rise as BRICs devote more resources to non-tradable sectors and upgrade their exports to higher value-added products. Thus, LICs could have increased opportunities to export labor-intensive manufactures and, more generally, to diversify their economies. The challenge for LICs is to

Yongzheng Yang

outlines key adjustments that global rebalancing would entail and their potential implications for low-income countries. Section IV then describes the modeling strategy to simulate the impact of global rebalancing on LICs and presents key results on this impact. Section V is devoted to the discussion of potential longer-term implications for LICs of global rebalancing from a perspective of global relocation of manufacturing, and Section VI concludes. II. LIC s in the G lobal I mbalances LIC economies have been insignificant in the global landscape of

International Monetary Fund. Research Dept.

others (2011) examined the short-run effects of the 2008–09 global financial crisis on growth in (mainly non-fuel exporting) LICs. They found that for many individual LICs, 2009 was not extraordinarily calamitous; however, aggregate LIC output declined sharply because LIC economies were unusually synchronized. They also found that the growth declines were on average well explained by the decline in export demand, and as the global economy recovered, their growth should rebound sharply. Compared to previous episodes of global crises, the terms-of-trade decline had a

International Monetary Fund. Research Dept.

policy transmission mechanism, especially in Kenya and Uganda: after a large policy-induced rise in the short-term interest rate, lending and other interest rates rise, the exchange rate tends to appreciate, output growth tends to fall, and inflation declines ( Figure 1 ). Figure 1. Kenya and Uganda: Selected Macro-Variables Jan. 2010–Dec. 2013 Source: IMF Working Paper 13/197. Question 5. But what about the special features of LIC economies? There can be no question that the unusual features of LIC economies can make a large difference to the MTM

Mr. Jiro Honda, Hiroaki Miyamoto, and Mina Taniguchi
What do we know about the output effects of fiscal policy in low income countries (LICs)? There are very few empirical studies on the subject. This paper fills this gap by estimating the output effects of government spending shocks in LICs. Our analysis—based on the local projection method—finds that the output effects in LICs are markedly lower than those in AEs and marginally smaller than those in EMs. We also find that in LICs, the output effects are larger (i) during recessions; (ii) under a fixed exchange rate regime; and/or (iii) with higher quality of institutions. Our analysis could not confirm any statistically significant output effect under floating exchange rate regimes. For the estimation of the output effects of fiscal spending shocks, it is thus important to consider the state of the economy and the country’s structural characteristics. Our results imply that the output costs of fiscal adjustment in LICs may not be as large as previously thought, especially if adopted outside of a recession, based on cutting public consumption, and accompanied by reform to enhance institutions.