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Measuring the World Economy
Author(s) -
Badinger Harald
Publication year - 2013
Publication title -
the world economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.594
H-Index - 68
eISSN - 1467-9701
pISSN - 0378-5920
DOI - 10.1111/twec.12022
Subject(s) - economics , volatility (finance) , openness to experience , spillover effect , econometrics , sample (material) , econometric model , macroeconomics , descriptive statistics , monetary economics , statistics , social psychology , chemistry , psychology , mathematics , chromatography
This article provides an empirical assessment of whether the world economy has become smaller in terms of economic distance over the last decades. We adopt a cross‐sectional spatial econometric approach, relating domestic output volatility to (distance‐weighted averages of) other countries’ output volatility, using a sample of 135 countries and rolling 10‐year time windows over the period from 1955 to 2006. Using descriptive measures, test statistics and spatial econometric estimates, we find that cross‐country interdependence was virtually insignificant in the early post‐war period but has increased strongly from the mid‐1960s to the mid‐1980s and remained at a high level since then. Results for the most recent period suggest that common shocks to output volatility have a magnified impact and roughly quadruplicate through international spillover effects, which are transmitted through both trade and financial openness.