What are international spillovers?

In a highly interdependent world, countries' actions and policies can have positive or negative effects on other countries' ability to achieve the SDGs. International spillover effects occur when one country's actions generate benefits or impose costs on another country that are not reflected in market prices, and therefore are not "internalized" by the actions of consumers and producers.

Both global supply chains and international financial flows can generate negative or positive spillovers. Examples of negative international spillovers include demand for commodities (such as palm oil or soy) in one country that fuels deforestation in other countries; or tolerance for poor labor standards in international supply chains that harm vulnerable populations in developing countries. Conversely, Official Development Assistance is an example of positive spillover.

Understanding and managing negative and positive spillover effects is essential, as countries cannot successfully achieve the SDGs if external influences negate their efforts. Data and statistics play a fundamental role as the initial tools for countries to assess and control their international spillover impacts. Promoting policy coherence stands out as a key strategy for countries in mitigating these spillover effects effectively.

Methodology

The BSI tool assesses three types of spillovers: economic spillovers, social spillovers embodied into trade, and environmental spillovers related to both exports and imports of goods and services. The tool also displays the Spillover Index, which methodology is presented in detail in the Sustainable Development Report (Sachs et al., 2024). The indicators featured in the tool rely on various data sources, both official data from international organizations and non-official data from modelling and peer-reviewed articles.

Compared to other spillover types, the assessment of environmental spillovers linked to imports necessitates complex modeling and the application of a distinctive methodology. In today's interconnected world, characterized by intricate global trade and international production processes, it has become crucial to quantify externalities resulting from a country's consumption that extend beyond its borders. These offshore impacts are evaluated using a Consumption Based Accounting (CBA) approach (Wood et al., 2020).

The CBA method considers all impacts associated with a country's consumption and requires comprehensive data on trade flows within and between countries to trace the production and transformation of products across various economic sectors globally. Typically provided by national statistical offices, empirical trade data is then integrated by international organizations or researchers to construct Multi-Regional Input-Output (MRIO) models. MRIO databases facilitate the tracking of complex global value chains (Wiedmann & Lenzen, 2018), and can be enhanced to quantify the social and environmental impacts of each trade flow. This process requires accurate national metrics on environmental and social impacts, ultimately yielding country-level data on the extent of a country’s environmental and social impacts abroad.

The BSI tool incorporates various metrics extracted from MRIO models, such as greenhouse gas emissions (GHG), sulfur dioxide emissions (SO2), nitrogen oxides emissions (NOx), and the consumption of scarce water concealed within countries’ imports of goods and services.