The evolving international effects of China's government spending

Abstract This paper examines the international spillover effects of China's government spending using the Bayesian technique based on a monthly dataset covering China, the world economy and the G7. The split‐sample analysis shows that China's government spending had a significant positive spillover effect on the world economy after 2008, while the effect was moderately negative before 2008. The trade channel plays a dominant role in the international propagation of China's government spending shock and could explain the changes in spillover effects. For the domestic economy, the stimulative effect of China's government spending has weakened slightly after 2008.