how the spillover effect works
spillover effects are a type of network effect that have increased in prevalence due to globalization in trade and stock markets which deepened financial connections between economies the canada u s trade relationship provides an example of spillover effects this is because the u s is canada s main market by a wide margin across nearly every export oriented sector the effects of a minor u s slowdown are amplified by the canadian reliance on the u s market for its own growth for example if consumer spending in the united states declines it has spillover effects on the economies that depend on the u s as their largest export market the larger an economy is the more spillover effects it is likely to produce across the global economy since the u s is a leader in the global economy nations and markets can be easily swayed by domestic turmoil most of the world experiences significant spillover effects when there is a downturn or macro effect in the world s two largest economies the united states and china since 2009 china has emerged as a major source of spillover effects as well this is because chinese manufacturers have driven much of the global commodity demand growth since 2000 with china becoming the number two economy in the world after the u s the number of countries that experience spillover effects from a chinese slowdown is increasingly significant 