This article was written by Lubos Pernis and published on LinkedIn. Lubos is a Data Scientist at FNA.
Italy’s economy is going to be hit hard by the Coronavirus. The economic effects of the situation in Italy are, however, unlikely to stay contained to Italy – both the demand shock and the potential supply shock can easily spread to other countries through the linkages in global supply chains. Here, I aim to visually demonstrate which other countries and sectors could end up being impacted by the situation in Italy.
I created a map of the global supply chain using the latest release of the World Input-Output Tables from 2014. Two sectors are linked together if one sector supplies inputs for another sector. The database covers over 2600 thousand country & sector combinations and over 6 million links between these.
The Figure below depicts the overall network visualization of the input-output table with colors denoting the individual countries in the network.
As one can see, the overall network visualisation is not much more than a hairball and it is difficult to derive any insights from it. To understand how other countries and their sectors might get affected as a result of the dampened demand in Italy, it is wiser to explore the network from bottom-up. To do that we can first look at Italy’s final consumption expenditure by households and then filter only the five most important links by value supplying goods and services to that sector. Note, that in this visualisation we exclude all the Italian sectors and instead focus only on imports to Italy.
The largest link (depicted by the width of the link) comes from Manufacture of textiles from ROW which stands for the Rest Of the World. Perhaps more interestingly, the second biggest link representing more than 6 billion dollars in value comes from the German “Manufacture of food products, beverages and textile products” industry. As we did before, we can again investigate its 5 biggest inputs in terms of value.
We see that out of the five largest inputs to manufacture food products sector in Germany, two come from the Netherlands, one from Brazil and France and one from the rest of the world. As such a fall in final consumption in Italy could impact the food manufacturing industry in Germany. The worsening situation in the German sector could in turn have a downstream effect on for example the Dutch crop and animal production sector as it directly supplies the potentially affected sector in Germany. In this knowledge one can go always further, for example by investigating the inputs to the Dutch sector in this example. It is important to state that all the insights are not derived from a rigorous model about how stress would propagate in input-output networks in case one particular sector experiences difficulties, but from visual investigation looking at the largest inputs only.
I believe that access to high-quality information is key in times of crisis. That is why we at FNA are working hard to make our supply-chain exploration and analytics tools publicly available to everyone who needs them now.