Measuring the Southern Growth Engine: China, India, and Brazil as Regional and World Economic Powers

Abstract: The world economy has undergone the transitional period of rebalancing in economic power from the Northern to Southern economies over the past decades, with the shifting becoming even more visible after the phenomenon of the global financial crisis in 2008. This paper examines the role of three large emerging economies, China, India and Brazil, as the new regional and global economic drivers via the transmission channel of international trade. The study employs GVAR framework to capture several external shocks at the world level for 33 individual countries covering the period of 1999Q1-2011Q3. The main findings demonstrate that the positive output shock in the three core emerging economies generally induces a significant and favorable impact on the export and output potentials of both emerging and advanced countries, with the effect being long-lasting even in the long-run. In particular, both China and Brazil act as regional powers and seem to have a vital impact to their neighboring economies as well as extending their global growth driver role to the rest of the world. The results also imply the existence of the decoupling hypothesis of several developing countries from the U.S. and simultaneously an increasing integration with the large emerging economies particularly with China.