Multi‐dimensional economic connectivity: benefits, risks, and policy implications

Abstract

AbstractVarious types of international connectivity serve as channels for the transmission of knowledge, which, in turn, is critical for long‐run economic growth. However, how much knowledge is transmitted to a country is not only the result of the overall level of connectivity, but also to whom a country is connected. For example, being well connected to an economy with wide‐reaching global connections is likely to be a stronger conduit for knowledge transfers than being connected to an isolated economy. Likewise, connections are likely to complement each other. This wider definition of connectivity, referred to as multi‐dimensional connectivity, is explored in this study as it applies to Europe and Central Asia (ECA). This paper shows that multi‐dimensional connectivity is an economically and statistically important determinant of future economic growth. The paper further discusses the potential risks and transfer of shocks that can result from cross‐country economic connectivity. Furthermore, it provides some examples of how policy tools can be designed to leverage the benefits of connectivity channels and mitigate their risks.