COMPARING SPILLOVER EFFECTS AMONG EMERGING MARKETS WITH A HIGHER (LOWER) SHARE OF COMMODITY EXPORTS: EVIDENCE FROM THE TWO MAJOR CRISES

Abstract

The paper empirically analyses the spillover into emerging markets with a higher (lower) share of commodity exports during the Global Financial Crisis (GFC) and the European Sovereign Debt Crisis (ESDC). To investigate such spillover effects, a group of rapidly growing emerging economies collectively known as BRICS (Brazil, Russia, India, China, and South Africa) is selected. The findings of the paper are as follows. First, a substantial increase in the average conditional correlation is noticed within all BRICS stock markets during the GFC. When considering the ESDC period, we also observed an increase in all markets, except for Brazil. Furthermore, the dynamic evaluation significantly increased from 2007 and it remained high during the ESDC. Second, trade profiles can help in explaining the spillover and correlation levels between emerging and developed markets. Among the BRICS countries, Brazil, Russia and South Africa heavily depend on commodity exports and the results show that these economies have a higher correlation with the developed economies. Further, Brazil and Russia are the most volatile when compared to the other BRICS countries, since these countries' commodities are dominated by food and agricultural exports and fuel and agricultural exports, respectively.