The Contagion Effects of European Union Macroeconomic Instability in Emerging Markets: Evidence from India

Abstract

This paper examines the European Union (EU) macroeconomic instability and its contagion effects on emerging market economies. Given the large economic weight of the EU in the world, the contagion of the crisis and its potentially devastating effects are necessitating a renewed attention from the researchers and international financial institutions in analyzing the nature and implications of sovereign debt on the political economy of developing and emerging economies in general, particularly India. Though the crisis is epicentered in the EU, its knock-on effects are felt all across the globe. The emerging and developing economies (EDEs) have posted lower growth on account of the worsening external environment and a weakening internal demand during the period of the Eurozone debt crisis. While presenting the contemporary literature on the topic, this paper analyses the causes of the sovereign debt crisis presents implications for sovereign debt crises and draws lessons particularly for emerging markets such as India.