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Using a cross-section of more than 25,000 domestic manufacturing firms in 78 low and middle-income countries from the World Bank's Enterprise Surveys, this paper assesses how mediating factors influence intra-industry productivity spillovers to domestic firms from foreign direct investment. It identifies three types of mediating factors: (i) foreign direct investment spillover potential, (ii) domestic firm absorptive capacity, and (iii) the host country's institutional framework. It finds that all three affect the extent and direction of foreign direct investment spillovers on domestic firm productivity. However, the impact of mediating factors depends significantly on the level of domestic firms' productivity and the structure of foreign ownership.

Absorptive capacity --- E-Business --- Economic Theory & Research --- Emerging Markets --- Firm characteristics --- Foreign Direct Investment --- Institutions --- International Economics & Trade --- Macroeconomics and Economic Growth --- Microfinance --- Poverty Reduction --- Productivity --- Spillovers

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Shocks stemming from Brazil - the large neighbor in South America - have historically been a source of concern for policy-makers in other countries of the region. This paper studies the importance of Brazil’s influence on its neighboring economies, documenting trade linkages over the last two decades and quantifying spillover effects in a Vector Auto Regression setting. While trade linkages with Brazil are significant for the Southern Cone countries (Argentina, Bolivia, Chile, Paraguay, and Uruguay), they are very weak for others. Consistent with this evidence, econometric results show that, while the Southern Cone economies (especially Mercosur’s members) are vulnerable to output shocks from Brazil, the rest of South America is not. Spillovers can take two different forms: the transmission of Brazil-specific shocks and the amplification of global shocks—through their impact on Brazil’s output. Finally, we also find suggestive evidence that depreciations of Brazil’s currency may not have significant impact on output of its key trading partners.

Finance --- Business & Economics --- Investment & Speculation --- Investments, Foreign --- Brazil --- Foreign economic relations. --- Exports and Imports --- Foreign Exchange --- Investments: General --- Macroeconomics --- Externalities --- Trade: General --- Investment --- Capital --- Intangible Capital --- Capacity --- International economics --- Currency --- Foreign exchange --- Spillovers --- Exports --- Depreciation --- Real exchange rates --- Real effective exchange rates --- Financial sector policy and analysis --- International trade --- National accounts --- International finance --- Saving and investment

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Staff Discussion Notes showcase the latest policy-related analysis and research being developed by individual IMF staff and are published to elicit comment and to further debate. These papers are generally brief and written in nontechnical language, and so are aimed at a broad audience interested in economic policy issues. This Web-only series replaced Staff Position Notes in January 2011.

Capital movements --- Capital flight --- Capital flows --- Capital inflow --- Capital outflow --- Flight of capital --- Flow of capital --- Movements of capital --- Balance of payments --- Foreign exchange --- International finance --- E-books --- Exports and Imports --- Macroeconomics --- International Investment --- Long-term Capital Movements --- Multinational Firms --- International Business --- Current Account Adjustment --- Short-term Capital Movements --- Externalities --- International economics --- Capital controls --- Capital account --- Spillovers --- Capital inflows --- Financial sector policy and analysis --- Brazil

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This paper documents the expanding economic linkages between low-income countries (LICs) and a narrow group of "Emerging Market leaders" that have become major players in regional and global trade and financial flows. VAR models show that these linkages have increased the share of growth volatility that can be attributed to foreign shocks in LICs. Dynamic panel models further analyze the impact of LIC trade orientation and production structure on the sensitivity to foreign shocks. The empirical results demonstrate that the elasticity of growth to trading partners' growth is high for LICs in Asia, Latin America and the Caribbean, and Europe and Central Asia. However, for commodity-exporting LICs in Sub-Saharan Africa and the Middle East, terms of trade shocks and demand from the emerging market leaders are the main channels of transmission of foreign shocks.

International economic integration --- Economic development --- Common markets --- Economic integration, International --- Economic union --- Integration, International economic --- Markets, Common --- Union, Economic --- International economic relations --- Econometric models. --- Exports and Imports --- Finance: General --- Macroeconomics --- Time-Series Models --- Dynamic Quantile Regressions --- Dynamic Treatment Effect Models --- Diffusion Processes --- Business Fluctuations --- Cycles --- Economic Integration --- Economic Growth of Open Economies --- Externalities --- Trade: General --- International Investment --- Long-term Capital Movements --- General Financial Markets: General (includes Measurement and Data) --- Commodity Markets --- Finance --- International economics --- Spillovers --- Exports --- Foreign direct investment --- Emerging and frontier financial markets --- Commodity price fluctuations --- Financial sector policy and analysis --- International trade --- Balance of payments --- Financial markets --- Prices --- International finance --- Investments, Foreign --- Financial services industry --- China, People's Republic of

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This paper uses a novel variant of identification through hetroscedacity to estimate spillovers across U.S., Euro area, Japanese, and UK government bond and equity markets in a vector autoregression. The results suggest that U.S. financial shocks reverberate around the world much more strongly than shocks from other regions, including the Euro area, while inward spillovers to the U.S. from elsewhere are minimal. There is also evidence of two-way spillovers between the UK and Euro area financial markets and spillovers from Europe to Japan. The results also suggest that the uncertainty about the direction of causality of contemporaneous correlations—an issue that other techniques cannot tackle—is the dominant source of uncertainty in the estimated impulse response functions.

Capital market. --- Bond market. --- Bond markets --- Market, Bond --- Capital market --- Capital markets --- Market, Capital --- Finance --- Financial institutions --- Loans --- Money market --- Securities --- Crowding out (Economics) --- Efficient market theory --- Finance: General --- Investments: Bonds --- Investments: Stocks --- Macroeconomics --- Estimation --- Time-Series Models --- Dynamic Quantile Regressions --- Dynamic Treatment Effect Models --- Diffusion Processes --- State Space Models --- International Finance: General --- International Financial Markets --- General Financial Markets: General (includes Measurement and Data) --- Externalities --- Pension Funds --- Non-bank Financial Institutions --- Financial Instruments --- Institutional Investors --- Investment & securities --- Stock markets --- Bond yields --- Spillovers --- Securities markets --- Stocks --- Financial markets --- Financial sector policy and analysis --- Stock exchanges --- Bonds --- International finance --- United States