The Direct and Indirect Effects of an Asymmetric Global Sectoral Shock: A Dynamic Analysis of Input–Output Linkages

This article studies how an economic shock with global impact propagates and amplifies through the network connecting different sectors and countries. We propose a computational approach to analyzing intersectoral linkages at both the global and local levels, making it possible to assess the economic impact and scope of a shock that disrupts normal activity in a given unit. In particular, we analyze two types of shocks: (1) a reduction in labor supply across a set of sectors in different countries, such as the impact of the COVID-19 pandemic; and (2) the interruption of supply from a sector in one country to the rest of the world, such as the effect of the war in Ukraine. We calibrate the model using data from the global input–output matrix and monthly production data for different productive sectors. The results highlight the need to consider, when assessing the systemic importance of different sectors, not only their economic characteristics —such as their size in terms of value added, output, or employment generated— but also the interlinkages among them and the position each sector occupies within production networks. It is important to bear in mind that national economies are part of an increasingly interconnected world. Therefore, their position and degree of integration within the complex web of global input–output linkages is also a relevant dimension.