Modeling the Impact of the COVID-19 Outbreak on Regional Industry Risk Contagion

Abstract

The outbreak and rapid spread of Covid-19 epidemic have brought severe challenges to the regional economy of China. The epidemic has led to interruptions in supply and decline in demand in some industries, causing supply chain risk spread through the industry chain to the entire network, which is very likely to trigger systemic risks. In order to simulate the risk contagion effect of the regional industrial supply chain under the influence of the epidemic, a network cascading failure model based on China's regional industrial network is proposed. We simulate the propagation of production suspension and liquidity risk in the case of unexpected interruption of supply and decline in demand in Hubei province as well as the rest part of China. The results show that risk propagation exhibits an abrupt transition with a critical time point. The risk spread is relatively slow and stable before the critical point. Once the critical point is exceeded, the accelerated spread makes the entire industrial network blackout in a short period. We also show that under the impact of supply-side and demand-side shocks, different industries have heterogeneous effects on systemic risk levels. re industrial network blackout in a short period. We also show that different industries have heterogeneous impact on systemic risk of the industry network under shocks from supply and demand side.