The direct and indirect effects of an asymmetric sectoral shock at the global level: A dynamic analysis of input-output relationships

Working papers | 2023 | N 111

Abstract

This article studies how an economic shock with a global impact spreads and amplifies through the network that connects different sectors and countries. We propose a computational approach for the analysis of intersectoral relationships at both a global and local level, from which it is possible to evaluate the economic impact and scope of a shock that interrupts the normal functioning of a unit. In particular, we analyze two types of shocks: (1) reduction in labor supply in a set of sectors in different countries, such as the impact of the COVID-19 pandemic; and (2) disruption of supply from one sector in one country to the rest of the world, such as the effect of the war in Ukraine. We calibrate the model using data from the global input-output matrix and the monthly production of the different productive sectors. The results found highlight the need to consider in the analysis of the systemic importance of the different sectors, not only their economic characteristics - such as their size in terms of value added, production or employment generated - but also the interrelationships between them and the position that each one occupies in the productive networks. It is important to keep in mind that national economies are part of an increasingly interconnected world, so their position and integration in the complex network of input-output relationships at a global level is also a relevant dimension.

JEL classification: C63; C67; F47