A shifting global anchor: an empirical study of U.S. spillover effects and China’s rising role in the world economy

Khoo, Adelynn Yi Xuan and Chen, You Chuen and Goh, Robert Zhen Shi (2026) A shifting global anchor: an empirical study of U.S. spillover effects and China’s rising role in the world economy. Final Year Project, UTAR.

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Abstract

This study investigates the spillover effects of the United States economy on global growth and inflation, with a particular focus on the evolving role of China as a potential alternative anchor in the international system. Using a balanced panel dataset covering 20 advanced and emerging economies involving United State from 1975 to 2024, the study applies a Panel Vector Autoregression (PVAR) framework to analyze how U.S. and Chinese macroeconomic shocks influence domestic GDP growth and inflation across different countries. By incorporating variables such as U.S. GDP growth, U.S. inflation, the federal funds rate, China’s GDP growth, trade volume, commodity prices, exchange rates, and measures of trade and financial openness, the research provides a comprehensive assessment of transmission mechanisms over time. The results suggest that U.S. spillovers remain highly significant, despite the relative decline in the U.S. share of global GDP. Shocks originating in the U.S. continue to have a strong and immediate impact on growth and inflation in both advanced and emerging economies, with the magnitude of this impact depending on trade linkages, financial openness, and exchange rate regimes. At the same time, China’s rising global role is evident, particularly in stimulating growth in commodity-exporting countries and influencing inflation through demand for raw materials. The findings highlight that while China has become an important source of global spillovers, the U.S. retains a dominant position, particularly through financial channels and investor sentiment. This study contributes to the literature by providing long-term evidence on the persistence of U.S. economic influence while contextualizing the growing presence of China. The results have implications for policymakers seeking to balance domestic macroeconomic stability with external vulnerabilities, as well as for debates on the future structure of global economic leadership.

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