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EU FDI Network and Systemic Risks

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  • Giulia De Masi
  • Giorgio Ricchiuti

Abstract

Fragmentation of production certainly is a possible channel of economic contagion and is playing a key role in the study of Systemic Risk. The investments abroad of firms implicitly create long range economic dependencies between investors and the economies of destination, possibly triggering contagion phenomena. Complex Network theory is a primary tool to highlight economic mutual relationships and paths of economic contagion, shedding light on intrinsic systemic risks. In this paper we reconstruct the networks of EU28 foreign direct investments and we study the networks' evolution from 2003 to 2015 for 38 economic sectors. Our analysis aims at detecting the change of topological properties of foreign direct investment network during the crisis, in order to assess its effect on the architecture of economic relationships. Trough a detailed study of correlations at different time lags between network measurements and macroeconomic variables, we assess systemic risks based on network topology. The main results are: (i) a sharp change of network topology from a sparse to a strongly clusterized network is clearly visible before the crisis and a quantitative evaluation of the network communities is given; (ii) after the crisis, investments from EU28 investors are mainly concentrated in EU28 countries there the Union becomes on of core cluster; (iii) time-lagged correlations between macro-economic variables and topological measurements show that network's topology measures anticipate the change of macro-economic variables.

Suggested Citation

  • Giulia De Masi & Giorgio Ricchiuti, 2018. "EU FDI Network and Systemic Risks," Working Papers - Economics wp2018_27.rdf, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.
  • Handle: RePEc:frz:wpaper:wp2018_27.rdf
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    File URL: https://www.disei.unifi.it/upload/sub/pubblicazioni/repec/pdf/wp27_2018.pdf
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    Cited by:

    1. Charlie Joyez, 2019. "Alignment of Multinational Firms along Global Value Chains: A Network-based Perspective," GREDEG Working Papers 2019-05, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis.

    More about this item

    Keywords

    Foreign Direct Investment; Economic networks; Projected network; Systemic Risks;

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation

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