spillover effects are generally the largest.<sup>13</sup> As before, for comparability, the shock size is normalized such that growth in each of the EM7 economies increases by 1 percentage point on impact. As the figure shows, the magnitude of spillovers varies across the EM7 economies. The increase in growth in China could raise growth in other EFM by about 0.5 percentage point whereas a similar shock in Russia and India would raise growth in other EFM by about 0.2-0.3 percentage point only. Spillovers from a growth shock in the rest of the EM7 economies —Brazil, Mexico, Indonesia, and Turkey —to other EFM are much smaller and/or statistically insignificant.

Beyond this aggregate impact, we also evaluate the spillover effects of the EM7 on individual EFM economies. For this, we use the country model where we estimate spillovers to each of the individual EFM economies (spillover destinations). Figure 5B summarizes the impulse responses of growth in other EFM economies due to a growth shock in each of the EM7 economies respectively. It reports the cross-sectional average response among the other EFM (spillover destinations) and the corresponding cross-sectional 20-80 percentile range. As the figure shows, an increase in growth in China permeates globally and affects growth in other emerging and frontier markets around the world.<sup>14</sup> The impulse responses at the 3-year horizon due to a 1 percentage point increase in China’s growth are statistically significant for 13 (8) out of 14 other EFM economies at the 1 standard deviation (2 standard deviations) significance level.<sup>15</sup> The spillover effects of a shock to growth in Russia are smaller; growth shocks in the rest of the EM7 economies have negligible effects on other EFM economies. Most of these spillover effects are also statistically insignificant.

A robust result from both the aggregate and the country models is that spillovers from growth fluctuations in China are the largest among the major emerging markets, while spillovers originating from Russia, though smaller than China, are non-trivial. The dominant role of China as a spillover source reflects its size and integration. In current dollar terms, China’s economy is more than four times the size of the next-largest EM7 economy (Brazil); its imports are six times the size of those of Russia; and its demand for primary energy and metals is four to ten times the size of that of India. These observations explain why growth spillovers from China are the largest among the EM7. Spillovers from Russia reflect its impact on neighboring economies in Europe and Central Asia. Negligible spillovers from the rest of the EM7 economies may reflect their limited integration and/or smaller economic size.

How would spillovers from an increase in growth in just China compare with those from a synchronous increase in growth in EM7? This is a relevant question given that cyclical fluctuations in emerging markets are often highly synchronized (Claessens, Kose and Terrones 2012).<sup>16</sup> For this, we compare the spillover results from two different versions of the aggregate model: one that features aggregate EM7 as the spillover source and another that features China as the spillover source to aggregate growth in EFM. A synchronous EM7 growth increase is defined as one in which EM7 growth increases by the same amount as an isolated increase in China’s growth, which we

> 13 Our results are generally robust when the impulse responses are analyzed at shorter horizons. For instance, Figure A4 in the Supplementary Appendix presents results at the two-year horizon.

> 14 Given the important role of China for global commodity demand, spillover effects from China could be more pronounced for commodity exporters than importers (Ahuja and Nabar 2012; Inoue, Kaya, and Ohshige 2015). Our results suggest that this is indeed the case. See Figure A1 in the Supplementary Appendix.

> 15 Due to unavailability of trade-weighted commodity prices data for Phillipines, the country model is not estimated for this country.

> 16 This has been the case in the recent growth slowdown as well since much of it has been synchronous and not limited to China alone (Didier et al. 2015).

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