Crisis contagion in the world trade network

Célestin Coquidé,Dima L. Shepelyansky,José Lages

doi:10.1007/s41109-020-00304-z

Abstract

We present a model of worldwide crisis contagion based on the Google matrix analysis of the world trade network obtained from the UN Comtrade database. The fraction of bankrupted countries exhibits an on-off phase transition governed by a bankruptcy threshold κ related to the trade balance of the countries. For κ>κc, the contagion is circumscribed to less than 10% of the countries, whereas, for κ<κc, the crisis is global with about 90% of the countries going to bankruptcy. We measure the total cost of the crisis during the contagion process. In addition to providing contagion scenarios, our model allows to probe the structural trading dependencies between countries. For different networks extracted from the world trade exchanges of the last two decades, the global crisis comes from the Western world. In particular, the source of the global crisis is systematically the Old Continent and The Americas (mainly US and Mexico). Besides the economy of Australia, those of Asian countries, such as China, India, Indonesia, Malaysia and Thailand, are the last to fall during the contagion. Also, the four BRIC are among the most robust countries to the world trade crisis.

Highlights

The financial crisis of 2007-2008 highlighted the enormous effect of contagion over world bank networks (see e.g. Gai and Kapadia (2010); Elliott et al (2014); Fink et al (2016))
Phase transition of the crisis contagion The crisis contagion in the 2016 world trade network (WTN) is observed in Fig. 2 where the fraction η of countries which go to bankruptcy is displayed as a function of the crisis contagion stage τ and of the bankruptcy threshold κ
Once a country have a PageRank-CheiRank trade balance (PCTB) below a threshold −κ, it is declared in a bankruptcy state in which it can no more import commodities excepting some vital one for the industry, i.e., petroleum and gas

Summary

Introduction

The financial crisis of 2007-2008 highlighted the enormous effect of contagion over world bank networks (see e.g. Gai and Kapadia (2010); Elliott et al (2014); Fink et al (2016)). This is due to the interplay between the WTN rewiring occurring at the successive stages of the crisis contagion and the relative protection of the main petroleum and gas exporters since even countries which went to bankruptcy can import these commodities from these suppliers.

Results

Conclusion