FROM MULTILATERALISM TO MULTI-POLARISM: A STUDY OF TRADE SHOCK TRANSMISSION BETWEEN SELECTED AFRICAN ECONOMIES, THE BRIC AND THE REST OF THE GLOBAL ECONOMY

Abstract

This study investigates trade shock transmission between selected African countries, the BRIC and the rest of the global economy with a view to understanding the likely disposition of African economies towards multilateralism in the years to come. The study extends the network approach of Diebold and Yilmaz [( 2009 ). Measuring financial asset return and volatility spillovers, with application to global equity markets. The Economic Journal, 119(534), 158–171, https://doi.org/10.1111/j.1468-0297.2008.02208.x ] by constructing generalized trade linkage measures at various degrees of aggregation using generalized forecast error variance decompositions of an underlying global vector autoregressive model. The results indicate that the trade linkage between Africa and the rest of the global economy is substantial, with the total trade linkage index having an average value of 87%. We find that China, USA, UK, Japan, EU and Canada dominate Africa’s trade and therefore have the potential to spread trade shocks to it. The results further indicate that apart from the BRIC, other regional trading blocs such as Asia, the Americas, and Europe play influential roles in Africa’s trade. Overall, the findings show that African economies are predominantly net receivers of trade shocks originating from the aforementioned dominant sources. We conclude that these patterns of cross-country trade shock spillovers, coupled with the ongoing challenges of legitimacy facing the World Trade Organisation, would likely influence Africa’s move from multilateralism to multi-polarism in the years to come.