CONNECTIVITY COUNTS: HOW IS

THE GEOGRAPHY OF

INTERNATIONAL TRADE LINKAGES

CHANGING AND WHAT IS THE

EFFECT ON INTERNATIONAL

SHOCK TRANSMISSION?

Eleonora Mavroeidi

OECD, Economics Department

Macroeconomic Analysis Division

• Evolution of interconnectivity and centrality of international trade before and after the global financial crisis

• Variation in the contagion of pre- and post-crisis trade shocks.

2

Objectives

• Inter-Country Input-Output (ICIO), OECD TiVA (2018)

– 64 countries

– 36 industries

– 2005 - 2015

Network:

• Nodes: country – industry pairs

• Weights: input transaction flows from a country/industry to a partner country/industry

• Edges are directed: A B: B uses inputs from A

3

Data

4

Network Characteristics

- Centrality measures

Forward PageRank

Backward PageRank

- Community detection

Louvain algorithm

China has emerged as the most important hub of global trade

5

Note: Page-Rank Measure. Centrality reflects the relative importance of a country in the world input-output network, taking into account

the size of its trade activity (total exports), the number of trading partners and the importance of these partners in the overall network

Source: OECD Secretariat

0

0.2

0.4

0.6

0.8

1

1.2

0

0.2

0.4

0.6

0.8

1

1.2CHN

USA

DEU

FRA

ITA

JPN

GBR

IND

ESP

KOR

RUS

BRA

TUR

AUS

CAN

MEX

CHE

NLD IDN

BEL

COL

POL

LUX

MYS

VNM

SWE

DNK

ARG

AUT

THA

CZE

CHL

NZL FIN

NOR

PRT

ISR

LVA

SVK

IRL

GRC

HUN

EST

SVN

LTU ISL

2015 2005

Relative Centrality by country, 2005 and 2015

2005 2015

USA Motor vehicles, trailers and semi-trailers CHN Computer, electronic and optical products

CHN Computer, electronic and optical products USA Motor vehicles, trailers and semi-trailers

USA Construction DEU Motor vehicles, trailers and semi-trailers

DEU Motor vehicles, trailers and semi-trailers USA Public admin. and defense; compulsory social security

USA Public admin. and defense; compulsory social security MEX Motor vehicles, trailers and semi-trailers

CAN Motor vehicles, trailers and semi-trailers USA Construction

USA Wholesale and retail trade; repair of motor vehicles USA Other business sector services

USA Other business sector services CHN Construction

MEX Motor vehicles, trailers and semi-trailers USA Wholesale and retail trade; repair of motor vehicles

USA Human health and social work USA Human health and social work

USA Food products, beverages and tobacco CHN Electrical equipment

USA Computer, electronic and optical products CHN Basic metals

USA Transportation and storage CHN Chemicals and pharmaceutical products

DEU Food products, beverages and tobacco USA Food products, beverages and tobacco

USA Machinery and equipment, nec GBRArts, entertainment, recreation and other service

activities

USA Chemicals and pharmaceutical products CAN Motor vehicles, trailers and semi-trailers

KOR Computer, electronic and optical products CHN Machinery and equipment, nec

DEU Machinery and equipment, nec DEU Food products, beverages and tobacco

GBRArts, entertainment, recreation and other service

activitiesCHN Motor vehicles, trailers and semi-trailers

MYS Computer, electronic and optical products KOR Computer, electronic and optical products 6

Top 20 most central industries in 2005 and 2015

7

Less but more dense production hubs

have emerged

0

50

100

150

200

250

300

350

400

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

No

of

No

des

(co

un

try

-in

du

stry

pa

irs)

Communities

2005 2015

8

Diffusion Mechanism

Watts threshold model

- Seed: country-industry pairs adopt a given behavior –trade

restrictions

- Threshold: fraction of the number of neighbors that need to adopt

the behavior before imitating

- W =[ 𝑤𝑖𝑗] − 𝑖𝑛𝑝𝑢𝑡 𝑤𝑒𝑖𝑔ℎ𝑡𝑒𝑑 𝑙𝑖𝑛𝑘𝑎𝑔𝑒𝑠

𝜑𝑖 = ∆ 𝐺 for all i

𝑘𝑖𝑖𝑛 =

𝑗

𝑤𝑖𝑗

𝑘𝑖𝑖𝑛/𝑖𝑛𝑓𝑒𝑐𝑡𝑒𝑑

=

𝑗∈𝐼

𝑤𝑖𝑗 𝑤ℎ𝑒𝑟𝑒 𝐼 = 𝑠𝑒𝑡 𝑜𝑓 𝑖𝑛𝑓𝑒𝑐𝑡𝑒𝑑′ 𝑛𝑜𝑑𝑒𝑠

- Node infected if 𝑘𝑖𝑖𝑛/𝑖𝑛𝑓𝑒𝑐𝑡𝑒𝑑

/𝑘𝑖𝑖𝑛>𝜑𝑖

9

Shock transmission over time

Source: OECD calculations.

Transmission comparison 2005-201510% of nodes adopt trade restrictions

10

Shock transmission over different

thresholds

Source: OECD calculations.

Network structure:

- Relative important sectors

- Clusters formation

Shock transmission

- Trade restriction shocks transmit faster and the cost of

negative shocks will be higher post-crisis than pre-crisis

11

Summary

THANK YOU

12

14

Increased density pre and post crisis

0.4

0.5

0.6

0.7

0.8

0.9

1

1.1

Sh

are

of

no

des

Sector

2005 2015