LinkedInwithBackgroundEconomicsRaceandIncomeInequalityGenderandIncomeInequalityPracticalLookAtMicroeconomicsUnderstandingIncomeInequalityGlobalTradeGuideGuidetoEconomicsMicroeconomicsMacroeconomicsBehavioralEconomicsSeeAllEconomyEconomicsWhatIstheSpilloverEffect?Spillovereffectreferstotheimpactthatseeminglyunrelatedeventsinonenationcanhaveontheeconomiesofothernations.Althoughtherearepositivespillovereffects,thetermismostcommonlyappliedtothenegativeimpactadomesticeventhasonotherpartsoftheworldsuchasanearthquake,stockmarketcrisis,oranothermacroevent.HowtheSpilloverEffectWorksSpillovereffectsareatypeofnetworkeffectthatincreasedsinceglobalizationintradeandstockmarketsdeepenedthefinancialconnectionsbetweeneconomies.TheCanada-U.S.traderelationshipprovidesanexampleofspillovereffects.ThisisbecausetheU.S.isCanada’smainmarketbyawidemarginacrossnearlyeveryexport-orientedsector.TheeffectsofaminorU.S.slowdownareamplifiedbytheCanadianrelianceontheU.S.marketforitsowngrowth.Forexample,ifconsumerspendingintheUnitedStatesdeclines,ithasspillovereffectsontheeconomiesthatdependontheU.S.astheirlargestexportmarket.Thelargeraneconomyis,themorespillovereffectsitislikelytoproduceacrosstheglobaleconomy.SincetheU.S.isaleaderintheglobaleconomy,nationsandmarketscanbeeasilyswayedbydomesticturmoil.Mostoftheworldexperiencessignificantspillovereffectswhenthereisadownturnormacroeffectintheworld'stwolargesteconomies:theUnitedStatesandChina.Since2009,Chinahasemergedasamajorsourceofspillovereffectsaswell.ThisisbecauseChinesemanufacturershavedrivenmuchoftheglobalcommoditydemandgrowthsince2000.WithChinabecomingthenumbertwoeconomyintheworldaftertheU.S.,thenumberofcountriesthatexperiencespillovereffectsfromaChineseslowdownissignificant.WhenChina'seconomyexperiencesadownturn,ithasapalpableimpactontheworldwidetradeinmetals,energy,grains,andmanymorecommodities.Thisleadstoeconomicpainthroughmuchoftheworld,althoughitismostacuteinEasternEurope,theMiddleEast,andAfrica,astheseareasrelyonChinaforalargerpercentageoft