Shock propagation channels behind the global economic contagion network. The role of economic sectors and the direction of trade

Iloskics, Zita; Sebestyén, Tamás; Braun, Erik

doi:10.1371/journal.pone.0258309

Cited by 3 publications

(3 citation statements)

References 55 publications

(78 reference statements)

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“…The cascading effect in global trade networks has been studied extensively based on crossborder trade data [8][9][10][11]. When a failure occurs at one node in the network, it does not remain confined within that nation's borders, but extends to neighboring nodes.…”

Section: Introductionmentioning

confidence: 99%

The potential for cascading failures in the international trade network

Kang,

Lee,

Yang

2024

PLoS ONE

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In our study, we introduce indicators that quantify the influence of each country in complex trade scenarios involving the exchange of raw materials, intermediate goods, and final products across multiple countries. We systematically employ an agent-based model to simulate the propagation of failures from one node to the entire network. This approach allows for the assessment of the impact of each country and the identification of patterns of interaction in the multi-step trade network. Unlike conventional analyses of trade networks, which depict straightforward single-step import/export transactions, our approach captures the intricate realities of processes like raw material procurement, production, and sales in numerous countries from a macroscopic perspective. The findings of our analysis of trade data spanning from 1990 to 2022 reveal several key insights. Firstly, sensitivity to changes in trade volume leading to global failures within interconnected networks has intensified over time. The potential of failure propagation across countries has increased over time, as has the interconnectedness of countries in the global trade landscape. Secondly, despite the increased sensitivity to changes in global trade volume, many countries have become less vulnerable to the influence of others within their multi-step trade networks. This trend aligns with deglobalization, which is evidenced by events such as Brexit and the surge in protectionist measures; these changes indicate a shift in the balance of influence within global trade networks. Thirdly, the results of our analysis of the relationship between load changes and global failures from a regional perspective reveal an intriguing phenomenon: despite limited direct trade connectivity, the interaction between the Latin American and Sub-Saharan African regions is considerable. This suggests the existence of hidden connections between intermediary countries, such that one region’s actions can alter the load sensitivity of another, impacting them in unforeseen ways. Furthermore, intra-regional interactions are diminishing in East Asia, while Europe is experiencing a gradual increase in interactions. These trends reflect evolving regional influence, the dynamics of geographic proximity, and the results of economic integration efforts. Additionally, even though the observed period was not long enough to confirm a long-term trend, the previous trend direction was affirmed to persist despite a temporary decrease in trading and reduced sensitivity due to the COVID-19 pandemic. Our study highlights the complexity of global trade dynamics and the need to consider multi-step trade networks and their potential cascading effects when analyzing trade patterns and vulnerabilities.

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Section: Introductionmentioning

confidence: 99%

The potential for cascading failures in the international trade network

Kang,

Lee,

Yang

2024

PLoS ONE

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“…Our article also relates to the large literature on trade and shock propagation. Previous literature has shown that trade is a relevant channel for the propagation of macro shocks (for some relevant references, see Leila,, 2011; Beaudry et al., 2008; Hail & Pozo, 2008; Chang et al, 2022; Kali and Reyes, 2010; Iloskics et al., 2021). Trade integration can amplify local shocks but can also help dissipate impacts of adverse shocks (Chang et al, 2022).…”

Section: Introductionmentioning

confidence: 99%

Crisis averted: Cross‐market reallocation during the great trade collapse

Oglend,

Asche,

Straume

2024

World Economy

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This article investigates cross‐market reallocation of trade to mitigate negative effects of large economic shocks. We propose a simple measure of trade reallocation and apply it to Norwegian exports during the great trade collapse following the financial crisis in 2008–2009. The results indicate statistically significant cross‐market reallocation of trade away from markets hit hard by the crisis as measured by GDP/growth. Norwegian exports declined by 16.9% from 2008 and 2009. Without reallocation, the decline would have been between 1.6 and 3.8 percentage points greater. Successful reallocation at the firm level is done primarily along the intensive margin, by shifting physical products towards less affected markets within their pre‐crisis trade networks.

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“…While this process undoubtedly brings efficiency and provides opportunities for developing countries to get involved in the global division of labour (Cristelli et al, 2015; Straka et al, 2017), the price that must be paid for these benefits is the systematic risk emerging from the increased interconnectedness (Barrot et al, 2020; Bonadio et al, 2021; Fang et al, 2020; Guan et al, 2020; He & Deem, 2010; Iloskics et al, 2021; Schweitzer et al, 2009; Sheng, 2010). Through the process of specialisation, the nodes and the edges of the global production network become increasingly exposed to certain disruptions, when adjustment of the supply chains requires longer periods of time.…”

Section: Introductionmentioning

confidence: 99%

Exposure to trade disruptions in case of the Russia–Ukraine conflict: A product network approach

Braun

Gyimesi

et al. 2023

World Economy

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This study provides a product network‐based analysis of the impact of the Russia–Ukraine war on the economy of third countries. While recent studies based on input–output data already revealed several economic consequences of the conflict, our approach allows for more detail regarding geographical coverage and heterogeneity of the affected products. The method also provides a decomposition of exposures on a country‐by‐country basis. After identifying the most important products exported by Ukraine and Russia, we apply a comprehensive indicator of exposure and measure the dependence of third countries on products imported from Ukraine or Russia. Results reinforce that Ukraine dominates in iron and agricultural products, while Russia is important through exporting energy sources, raw materials and iron products. Post‐Soviet and European countries have high exposure to Russian imports, confirming the energy dependence of these countries. Middle Eastern and African countries heavily depend on Ukraine, especially for grain imports, possibly causing food security problems. Using data on trade restructuring over the past year, we also analyse the relationship between trade exposure and the extent to which countries were willing to support Ukraine. Results show that it is not exposure itself, but the decrease of exposure over time which correlates with military support.

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Shock propagation channels behind the global economic contagion network. The role of economic sectors and the direction of trade

Cited by 3 publications

References 55 publications

The potential for cascading failures in the international trade network

The potential for cascading failures in the international trade network

Crisis averted: Cross‐market reallocation during the great trade collapse

Exposure to trade disruptions in case of the Russia–Ukraine conflict: A product network approach

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