Title page 1

Contents 1

Abstract 2

Introduction 4

Synchronization of business cycles in EMDEs with those in the rest of the world 11

Business cycle spillovers from major economies 14

Challenges confronting EMDEs 17

Policy priorities in EMDEs 24

Conclusion 34

Annex 1. Dynamic factor model methodology 57

Annex 2. SVAR methodology 61

References 65

Figures 36

Figure 1. EMDEs' contribution to global output and growth 36

Figure 2. EMDEs in global trade 37

Figure 3. EMDEs in global commodity markets 37

Figure 4. EMDEs in global financial markets 39

Figure 5. Synchronization of business cycles 40

Figure 6. Decomposition of business cycle variance 41

Figure 7. Spillovers from the EM3 and AE3 42

Figure 8. Spillovers from China and the United States 43

Figure 9. Spillovers over time and across country groups 44

Figure 10. Growth, convergence, and poverty 45

Figure 11. Potential output growth and long-term growth expectations 46

Figure 12. Trade and investment fragmentation 48

Figure 13. Global trade integration 50

Figure 14. Debt and fiscal conditions 51

Figure 15. Institutional environment and policy uncertainty 52

Figure 16. Natural disasters and climate change 53

Figure 17. Investment accelerations in EMDEs 54

Figure 18. Trade policy 55

Figure 19. Fiscal and monetary policy frameworks 56

Annex Tables 59

Table A.1.1. Sample, benchmark DFM 59

Table A.1.2. Sample, alternative DFM 60

Table A.2.1. Sample, benchmark SVAR model 64

Table A.2.2. Sign and zero restrictions imposed to identify shocks in the SVAR models 64