Stability of the World Trade Web over Time - An Extinction Analysis
The World Trade Web (WTW) is a weighted network whose nodes correspond to countries with edge weights reflecting the value of imports and/or exports between countries. In this paper we introduce to this macroeconomic system the notion of extinction analysis, a technique often used in the analysis of ecosystems, for the purposes of investigating the robustness of this network. In particular, we subject the WTW to a principled set of in silico "knockout experiments," akin to those carried out in the investigation of food webs, but suitably adapted to this macroeconomic network. Broadly, our experiments show that over time the WTW moves to a "robust yet fragile" configuration where it is robust to random failures but fragile under targeted attack. This change in stability is highly correlated with the connectance (edge density) of the network. Moreover, there is evidence of a sharp change in the structure of the network in the 1960s and 1970s, where most measures of robustness rapidly increase before resuming a declining trend. We interpret these results in the context in the post-World War II move towards globalization. Globalization coincides with the sharp increase in robustness but also with a rise in those measures (e.g., connectance and trade imbalances) which correlate with decreases in robustness. The peak of robustness is reached after the onset of globalization policy but before the negative impacts are substantial. These analyses depend on a simple model of dynamics that rebalances the trade flow upon network perturbation, the most dramatic of which is node deletion. More subtle and textured forms of perturbation lead to the definition of other measures of node importance as well as vulnerability. We anticipate that experiments and measures like these can play an important role in the evaluation of the stability of economic systems.
References listed on IDEAS
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- David Aikman & Piergiorgio Alessandri & Bruno Eklund & Prasanna Gai & Sujit Kapadia & Elizabeth Martin & Nada Mora & Gabriel Sterne & Matthew Willison, 2011.
"Funding Liquidity Risk in a Quantitative Model of Systemic Stability,"
Central Banking, Analysis, and Economic Policies Book Series,in: Rodrigo Alfaro (ed.), Financial Stability, Monetary Policy, and Central Banking, edition 1, volume 15, chapter 12, pages 371-410
Central Bank of Chile.
- Aikman, David & Alessandri, Piergiorgio & Eklund, Bruno & Gai, Prasanna & Kapadia, Sujit & Martin, Elizabeth & Mora, Nada & Sterne, Gabriel & Willison, Matthew, 2009. "Funding liquidity risk in a quantitative model of systemic stability," Bank of England working papers 372, Bank of England.
- David Aikman & Piergiorgio Alessandri & Bruno Eklund & Prasanna Gai & Sujit Kapadia & Elizabeth Martin & Nada Mora & Gabriel Sterne & Matthew Willison, 2009. "Funding Liquidity Risk in a Quantitative Model of Systemic Stability," Working Papers Central Bank of Chile 555, Central Bank of Chile.
- Fagiolo, Giorgio & Reyes, Javier & Schiavo, Stefano, 2008. "On the topological properties of the world trade web: A weighted network analysis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 387(15), pages 3868-3873.
- Giorgio Fagiolo & Javier Reyes & Stefano Schiavo, 2007. "On the Topological Properties of the World Trade Web: A Weighted Network Analysis," Papers 0708.4359, arXiv.org.
- Piergiorgio Alessandri & Prasanna Gai & Sujit Kapadia & Nada Mora & Claus Puhr, 2009. "Towards a Framework for Quantifying Systemic Stability," International Journal of Central Banking, International Journal of Central Banking, vol. 5(3), pages 47-81, September.
- Matteo Barigozzi & Giorgio Fagiolo & Diego Garlaschelli, 2009. "Multinetwork of international trade: A commodity-specific analysis," Papers 0908.1879, arXiv.org, revised Jun 2010.
- Michael Boss & Martin Summer & Stefan Thurner, 2004. "Contagion Flow Through Banking Networks," Papers cond-mat/0403167, arXiv.org. Full references (including those not matched with items on IDEAS)
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