Macroeconomic uncertainty and “global” economic performance: A comparative analysis of the “economic contagion” phenomenon

Abstract

Purpose

This study aims to explore potential paradigm shift in how “global economies” react to adverse macroeconomic conditions from key dominant economies such as the US and the Chinese economies. This is done by examining how economic activities within key economies around the world react to, or are impacted by, modeled adverse macroeconomic condition emanating from the Chinese and the US economies.

Design/methodology/approach

To verify potential paradigm shift in how external macroeconomic uncertainty impacts “global” industrial productivity and overall gross domestic product (GDP) growth within selected economies, this study opts for seemingly unrelated regression (SUR) model. Adoption of this method has been influenced by the potential for correlated error terms between modeled adverse macroeconomic condition, industrial productivity and GDP growth variables being tested in a two-equation system.

Findings

Empirical results based on SUR analysis find no evidence of this potential paradigm shift within the time frame examined in the study. Estimated results suggest that notwithstanding the recent growth surge of the Chinese economy, macroeconomic happenings within the US economy still exert significantly more influence on key economies around the world. For instance, this study finds that macroeconomic uncertainty associated with the US economy significantly constrains both industrial productivity and overall GDP growth within most of the economies tested, whereas the same condition emanating from the Chinese economy seems to rather have a weak positive impact on the same macroeconomic variables.

Research limitations/implications

Research results are strictly limited to the focus time frame for this study; it is likely that expanded data involving more years beyond what was analyzed in this study could yield different results.

Originality/value

This study is an original research based on data from a reputable US federal institution.

Citation

Abaidoo, R. and Ellis, F. (2016), "Macroeconomic uncertainty and “global” economic performance: A comparative analysis of the “economic contagion” phenomenon", Journal of Financial Economic Policy, Vol. 8 No. 4, pp. 426-442. https://doi.org/10.1108/JFEP-11-2015-0066