Date of Award


Document Type

Union College Only

Degree Name

Bachelor of Arts



First Advisor

Jeeten Giri


Contagion Effect, GDP, Global Economy, Stock market, United States Economy


The United States economy has the most significant global impact due to its size and productivity. This paper explores how real GDP and stock market returns of other economies are affected by macroeconomic changes in the U.S economy. The transmission mechanisms that are highlighted are trade relationship, exchange rate dynamics, and foreign direct investment. This paper looks to determine which link with the U.S delivers the strongest effects on other economies, and if these effects are magnified in a recession period in the U.S. In this paper I have used cross country data of 170 economies from 1970 to 2014. Unlike existing literature that either focus on transmission or contagion effects, I have explored both in order to explain the global impact of US economic fluctuations. The results indicate that economies who peg to the U.S are most affected by changes to U.S GDP. Economies with net FDI outflow are most affected by movements in U.S stock returns. Since economies were more globally interconnected after 1991, macroeconomic changes in the U.S after 1991 affected other countries much more when compared to 1970 to 1990. When factoring in recessions, GDP transmission effects prove to not be significantly magnified. Economies with net FDI inflow are the most affected in a recession. The results on stock market returns indicate that the U.S returns significantly affect other countries’ returns in a recession, and countries that are net importers are most affected.