Network Analysis of International Trade: Shocks, Connections, and Implications

Abstract

This paper delves into the intricate interplay between idiosyncratic shocks, network connections among economic agents, and the ensuing implications for international trade dynamics. Drawing upon economic theory and empirical evidence, it scrutinizes how localized supply shocks, such as those induced by natural disasters, reverberate through global trade networks. Two models are deployed to elucidate the relationships between exogenous shocks and fluctuations in international trade, offering insights into the mechanisms through which shocks propagate or dissipate. By examining the distribution of suppliers and the network structures of various goods, the paper uncovers nuances in the transmission of shocks and their impact on aggregate outcomes. Moreover, it explores the evolving role of countries within the global trade network, particularly in the context of energy trade. The findings underscore the significance of network analysis in understanding the resilience of international trade amidst disruptions and underscore the policy implications for trade and exchange rate strategies. Future avenues for research are also delineated, emphasizing the need for deeper investigations into the dynamics of trade networks and policy responses to shocks.