The direct and indirect effects of an asymmetric sectoral shock: a dynamic input–output approach

This paper studies how economic shocks propagate and amplify through the network connecting different economic sectors and countries. We propose a computational approach for analyzing intersectoral relationships at both global and local levels, from which it is possible to evaluate the economic impact and scope of a shock that disrupts normal functioning in a unit. We analyze two types of shocks: (1) a reduction in labor supply in a set of sectors in different countries, such as the impact of the COVID-19 pandemic, and (2) a disruption of the supply of a sector in a country to the rest of the world, such as the effect of the war in Ukraine. We calibrate the model using data from the ICIO table and monthly production of different productive sectors. Our findings highlight the need to consider not only the economic characteristics of different sectors –such as their size in terms of value added, production, or employment – but also the interrelationships among them and the position that each occupies in the production networks, as well as analyzing the systemic importance of different sectors.