Abstract
•We investigate the financial development spillover effect on economic growth in the BRICS economy.•The analysis is based on the Global Vector Autoregressive (GVAR) model.•The private Credit shock has a positive spillover effect on growth only in China and India.•Not all of the BRICS can be considered global heavyweights with respect to the international transmission.
This paper explores cross-country evidence of the effects of private credit shocks on economic growth. It employs a Global Vector Autoregressive (GVAR) model, which allows us to capture the dynamics of this relationship in a multi-country setting, and connects countries through bilateral international trade. Given the progressive role that Brazil, Russia, India, China and South Africa (BRICS) play in the world economy, this paper focuses on whether private credit shocks in one BRICS member state affects economic growth in the other BRICS. To this end, the paper finds empirical evidence that credit to the private sector has a positive spillover effect on growth in some of the BRICS countries, specifically in China and India. Policy implications of findings are discussed.