Worldwide spreading of economic crisis

TL;DR

This paper models the global spread of economic crises using a network-based SIR epidemic model, revealing that both large and small countries can initiate worldwide crises and identifying the most central nations in spreading potential.

Contribution

It introduces a network model with a variable infection probability based on economic relations and applies k-shell decomposition to rank countries by crisis spreading power.

Findings

Both large and small countries can trigger global crises.

Identified 12 most central countries likely to spread crises.

Medium/small economies can be as influential as large ones in spreading crises.

Abstract

We model the spreading of a crisis by constructing a global economic network and applying the Susceptible-Infected-Recovered (SIR) epidemic model with a variable probability of infection. The probability of infection depends on the strength of economic relations between the pair of countries, and the strength of the target country. It is expected that a crisis which originates in a large country, such as the USA, has the potential to spread globally, like the recent crisis. Surprisingly we show that also countries with much lower GDP, such as Belgium, are able to initiate a global crisis. Using the {\it k}-shell decomposition method to quantify the spreading power (of a node), we obtain a measure of ``centrality'' as a spreader of each country in the economic network. We thus rank the different countries according to the shell they belong to, and find the 12 most central countries. These countries are the most likely to spread a crisis globally. Of these 12 only six are large economies, while the other six are medium/small ones, a result that could not have been otherwise anticipated. Furthermore, we use our model to predict the crisis spreading potential of countries belonging to different shells according to the crisis magnitude.