Spillover (economics)

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In economics, a spillover is a positive or a negative, but more often negative, impact experienced in one region or across the world due to an independent event occurring from an unrelated environment.^[1]

For example, externalities of economic activity are non-monetary spillover effects upon non-participants. Odors from a rendering plant are negative spillover effects upon its neighbors; the beauty of a homeowner's flower garden is a positive spillover effect upon neighbors. The concept of spillover in economics could be replaced by terminations of technology spillover, R&D spillover and/or knowledge spillover when the concept is specific to technology management and innovation economics.^[2] Moreover, positive or negative impact often creates a social crisis or a shock in the market like booms or crashes.^[1]

In the same way, the economic benefits of increased trade are the spillover effects anticipated in the formation of multilateral alliances of many of the regional nation states: e.g. SAARC (South Asian Association for Regional Cooperation), ASEAN (Association of South East Asian Nations).

In an economy in which some markets fail to clear, such failure can influence the demand or supply behavior of affected participants in other markets, causing their effective demand or effective supply to differ from their notional (unconstrained) demand or supply.

Another kind of spillover is generated by information. For example, when more information about someone generates more information about people related to her, and that information helps to eliminate asymmetries in information, then the spillover effects are positive (this issue has been found constantly in the economics and finance literature, see for instance the case of local banking markets^[3]).