Key Economic Sectors and Their Transitions: Analysis of World Input-Output Network

Abstract

In the modern society, all major economic sectors have been connected tightly in an extremely complicated global network. In this type of network, a small shock occurred at certain point can be spread instantly through the whole network and may cause catastrophe. Production systems, traditionally analyzed as almost independent national systems, are increasingly connected on a global scale. The world input-output database, only recently becoming available, is one of the first efforts to construct the global and multi-regional input-output tables. The usual way of identifying key sectors in an economy in Input-output analysis is using Leontief inverse matrix to measure the backward linkages and the forward linkages of each sector. In other words, evaluating the role of sectors is performed by means of their centrality assessment. Network analysis of the input-output tables can give valuable insights into identifying the key industries in a world-wide economy. The world input-output tables are viewed as complex networks where the nodes are the individual industries in different economies and the edges are the monetary goods flows between industries. We characterize a certain aspect of centrality or status that is captured by the network measure. We use an $\alpha$-centrality modified method to the weighted directed network. It is used to identify both how a sector could be affected by other sectors and how it could infect the others in the whole economy. The data used is the world input-output table, part of the world input-output database (WIOD) funded by European Commission from 1995 to 2011. We capture the transition of key industries over years through the network measures. We argue that the network structure captured from the input-output tables is a key in determining whether and how microeconomic expansion or shocks propagate throughout the whole economy and shape aggregate outcomes. Understanding the network structure of world input-output data can better inform on how the world economy grows as well as how to prepare for and recover from adverse shocks that disrupt the global production chains. Having analyzed these results, the trend of these sectors in that range of time will be used to reveal how the world economy changed in the last decade.