The impact of financial contagion on real economy-An empirical research based on combination of complex network technology and spatial econometrics model

Abstract

This study presents financial network indicators that can be applied to inspect the financial contagion on real economy, as well as the spatial spillover and industry aggregation effects. We propose to design both a directed and undirected networks of financial sectors of top 20 countries in GDP based on symbolized transfer entropy and Pearson correlation coefficients. We examine the effect and usefulness of the network indicators by newly using them instead of the original Dow Jones financial sector as explanatory variables to construct the higher-order information spatial econometric models. The results demonstrate that the estimated accuracies obtained from both the two networks are improved significantly compared with the spatial econometric model using the original data. It indicates that the network indictors are more effective to capture the dynamic information of financial systems. And meanwhile, the accuracy based on the directed network is a little higher than the undirected network, which indicates the symbolized transfer entropy, i.e. the directed and weighted network, is more suitable and effective to reflect relationships in the financial field. In addition, the results also show that under the global financial crisis, the co-movement between financial sectors of a country/region and the global financial sector as well as between financial sectors and real economy sectors is increased. However, some sectors in particular Utilities and Healthcare are impacted slightly. This study tries to use the financial network indicators in modeling to study contagion channels on the real economy and the industry aggregation effects and suggest how network indicators can be practically used in financial fields.

Analysis of financial contagion in influential African stock markets

“…Particularly, the Nigerian, South African and Kenyan stock markets are at higher risk because they were the most affected African countries by the US financial crisis, since they exhibited clear herding behavior to the US during the crisis and post crisis periods. These findings are in tandem with studies such as (see [4,27]) and quite contrary to [6,26,32].…”

“…Essentially, the world is becoming more and more globalized, such that it has become practically impossible for countries to operate in isolation. A self-sufficient economy based on autarky has been replaced with interaction in virtually all countries of the world, and in this circumstance, the intermediary role played by financial markets have resulted in the increased need for financial integration, which allows capital to travel to its most attractive destination [6,21]. Integrated financial markets facilitate inter-temporal capital flows and portfolio diversification but at the same time may increase the probability of financial crisis and the contagion of crisis across countries.…”

Regional innovation distribution and its dynamic evolution: Policy impact and spillover effect—Based on the perspective of innovation motivation

“…The production efficiency and competitiveness of a country can be enhanced by constantly improving the country's innovation ability. With the increasingly frequent exchanges between regions, the relations among regions, countries, and even the whole world are improved [12][13][14][15][16]. Reportedly, the spatial dependence of innovation makes the spatial knowledge spillover the main factor to affect the innovation distribution [17][18][19].…”

Financial Contagion Patterns in Individual Economic Sectors. The Day-of-the-Week Effect from the Polish, Russian and Romanian Markets

“…Their findings show that a pure contagion process can be observed only during the Subprime crisis and only for Oil and Gas and Basic materials sectors. Chen et al (2020) also include in their study spatial spillover and industry aggregation effects. Their results show that the financial sector was the epicenter of the GFC.…”