Global financial cycle, commodity terms of trade and financial spreads in emerging markets and developing economies

We examine how negative shocks which affect global financial conditions spill over into EMDEs through a fall in commodity terms of trade and greater financial spread. We estimate a two-equation dynamic panel data model for 33 of these economies during 1999.Q1-2020.Q4 to identify the effect of changes in the global financial conditions on the terms of trade and financial spread of commodities in these countries. In the first round, we focus on the diffusion of external negative financial spillovers from the financial center (the US) to the financial periphery, and to terms of trade and financial spread of commodities, leaving aside the feedback which operates from the first variable to the second one. In the second round, we allow commodities terms of trade to exert feedback on financial spreads. We find that the sign of this relationship depends on the productive structure and external trade pattern but differs from that of commodity net exporters and commodity net importers.