Identifying key sectors in the regional economy: a network analysis approach using input–output data

Abstract

By applying network analysis techniques to large input–output system, we identify key sectors in the local/regional economy. We overcome the limitations of traditional measures of centrality by using random-walk based measures, as an extension of Blöchl et al. (Phys Rev E 83(4):046127, 2011). These are more appropriate to analyze very dense networks, i.e. those in which most nodes are connected to all other nodes. These measures also allow for the presence of recursive ties (loops), since these are common in economic systems (depending to the level of aggregation, most firms buy from and sell to other firms in the same industrial sector). The centrality measures we present are well suited for capturing sectoral effects missing from the usual output and employment multipliers. We also develop and make available an R implementation for computing the newly developed measures.