Developed Global Markets and The Global Dynamics Impact on Emerging Market Gdp Per Capita

Abstract

This paper investigates how macroeconomic conditions in advanced economies transmit to emerging markets (EMs) and affect GDP per capita. Using a balanced panel of six EMs over roughly three decades, we estimate random-effects GLS and system-GMM models where EM GDP per capita depends on G7 inflation and EM unemployment, controlling for country-specific heterogeneity and endogeneity via external instruments. Random-effects estimates indicate that unemployment exhibits an economically and statistically significant negative association with income (β≈–0.486, z–2.47, p = 0.013), while the contemporaneous effect of G7 inflation is close to zero and insignificant. System-GMM diagnostics (Hansen J≈0.42, no AR(2)) support instrument validity and dynamic specification. Transmission operates mainly through financial conditions and the labour-market channel, which results suggest that global price pressures from advanced economies do not directly translate into emerging markets (EM) income changes in the short to medium run. To mitigate external tightening cycles -such as strengthened local-policy implications point to employment-focused measures and macro-financial buffers, currency debt markets, and precautionary liquidity. Overall, domestic labour-market dynamics dominate the near-term behaviour of GDP per capita, while global inflation plays at most an indirect role through interest-rate and capital-flow channels.