Systemic Effects on Intersectoral Linkages: Framework and Analysis

The existence of heterogeneity in size and response in each sector cannot be neglected. Moreover, there is an interaction between sectors in the form of trade between intermediate input and intermediate output. This research offers a framework to mathematically and empirically prove the existence of systemic effects on intersectoral linkages in the economy. This research is the first to interpolate data by scaling and updating the IO table using the RAS procedure to obtain quarterly IO datasets from 2001 to 2022 timeframe. Mathematically, on simple deductive proofs that combine Cobb–Douglas and Leontief’s production function, research has revealed the propagation of systemic risk. Furthermore, by utilizing a previous literature model with data from Indonesia, empirical approaches simulate shocks, namely, crude oil prices and business confidence, by using the SVAR procedure. In this regard, the empirical results indicate that systemic effects on intersectoral linkages in Indonesia do exist.