[ECON] Worldwide spreading of economic crisis

Worldwide spreading of economic crisis

(source: New Journal of Physics, vol. 12, n° 11, 2010)

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 a given pair of countries and the strength of the target country. It is expected that a crisis that originates in a large country, such as the USA, has the potential to spread globally, such as the recent crisis. Surprisingly, we also show that countries with a much lower GDP, such as Belgium, are able to initiate a global crisis. Using the 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 ones. 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.

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