An Interdependent MultiLayer Model Resilience of

Authors: Simone Caschili Francesca Romana Medda Alan Wilson

Publish Date: 2015/03/22

Volume: 15, Issue: 2, Pages: 313-335

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Abstract

Trade flows are characterised by interdependent economic networks such as the global supply chain international bilateral agreements transnational credit and foreign direct investments as well as noneconomic components ie infrastructures cultural ties and spatial barriers We construct an Interdependent Multilayer Model IMM which is rooted in the theoretical concept of spatial interaction in order to identify the links within these networks and trace their impacts on trade flows In our aim to investigate horizontal and vertical interdependency among networks we calibrate the interaction model IMM for a set of 40 countries and thereafter examine the influence of shocks such as economic downturns upon the interdependent networks which in our model are represented as economic sociocultural and physical layers Most importantly the model allows us to understand the propagation of cascading effects both positive and negative at national and global scalesDisruptions to sociocultural economic and ICT systems among other areas can have direct consequences on our daily lives Natural disasters such as Hurricane Katrina and the 2011 earthquake in Japan underline how our cities regions and nations are composed of complex interdependent systems Akhtar and Santos 2013 Burns and Slovic 2012 Matsziw et al 2009 Levin et al 1998 As systems become more interconnected their interdependence also grows therefore as a consequence we ask is it possible to evaluate the ability of systems to recover or renew after a shock And if so what can we learn about their resilience capacity in order to design better and more reliable economic systemsRecent advances in complexity science have heightened the demand for investigations into economic systems and their resilience to disruptive events Marincioni et al 2013 Liu et al 2007 In this sense complexity science provides new insights into the study of economic processes that are complex selforganising and adaptive with specific and with interconnected components or sectors at both national and international scale Holt et al 2011 Markose 2005 Rosser 1999 For example global supply chains are characterised by interrelated organisations resources and processes that create and deliver products and services to consumers in countries around the world The activity of buying a product or using a service then impacts not only on the national economy where the purchase happens but also affects several other international economies Bade and Parkin 2007 Shahabi et al 2013 Global supply chains are grounded on the notion that each firm contributing to the chain can provide a service or good at a price below the domestic price of final consumption Teng and Jaramillo 2005 Such an economic system is likely to be profitable when a particular country has an economic advantage due to its availability of specific natural resources a cheap labour force or a specialised technology Garelli 2003 But this is not enough An efficient distribution chain must be structured so that equal relevance is given to the hard infrastructures ie ports railways roads etc as well as to the soft infrastructures how infrastructures are operated of the chain which ultimately determines the competitive advantage of low transport costs Gunasekaran et al 2001 Finally as global trade increases firms enlist trusted partners when operating within the international trading environment International economic agreements have in fact enabled increased volumes of capital goods and services transacted across traditional state borders thereby raising direct foreign investments and the level of economic engagement across countries Büthe and Milner 2008Within this framework we carry out a quantitative analysis based on the equilibrium interaction approach in our study on international trade We have constructed an Interdependent Multilayer Model IMM to investigate horizontal and vertical interdependence among networks within the international trade system The IMM model allows us to estimate bilateral trade flow between countries imports and exports and in so doing detect the effect of shocks in the system identify the countries that allow for the spread of ‘effects’ and analyse the propagation of impacts on tradeThe paper is set out as follows In Section 2 we present a discussion on network resilience and present the main concepts underlying the construction of the Multilayer model In Sections 3 through 5 we examine the assumptions the layers and the algorithm comprising the model In Section 6 our data set and calibration process is presented and in Sections 7 and 8 we clarify the results of the model at the steady state and after the introduction of system shocks Section 9 concludes with comments on future extensions of the present workNetworks are ubiquitous across societies and economies in the form of physical networks such as transportation communication and utility services and also as intangible economic financial and social networks Caschili et al 2014 Clauset et al 2008 Newman 2003 Strogatz 2001 Whatever their nature as technology progresses we are becoming more dependent on networks and networks are simultaneously becoming more interdependent Burger et al 2014 Rinaldi et al 2001 The organisation and growth of a network determines its success or failure and consequently influences other interdependent networks Castet and Saleh 2013 For instance over the last 15 years we have witnessed the exponential growth of the World Wide Web this virtual network has transformed numerous other networks including transportation commerce and supply chains In the case of retail business the introduction of ecommerce as an alternative to traditional commerce has increased competitiveness provided countless specialised services and opened access to much wider markets Harvie 2004In this study we focus on scrutinising the interconnectivity among various systems economic sociopolitical and infrastructural networks and understanding the transmitted effects among those layersystems Ducruet and Beauguitte 2013 In this sense we can use the concept of resilience in order to describe the capacity of a hierarchical economic system composed of several sub systems to recover after being subject to a variety of challenges shocks disruptions attacks etc which move the system from its equilibrium According to the notion of ‘engineering resilience’ Pimm 1984 the faster a system returns to the equilibrium the higher its resilience In ‘ecological resilience’ Holling 1973 resilience is seen as the speed at which a system is able to absorb a shock by transitioning between new equilibria Focusing on economics systems scholars have coned various definitions of resilience Duval et al 2007 Rose 2007 Hill et al 2008 Martin 2012 connected to both engineering and ecological resilience Reggiani et al 2002 Our research question follows the ecological resilience literature ie is it possible to evaluate the ability of systems to recover or renew after a shock as we are interested in exploring how the systems evolves through new possible equilibria created by the interactions between and within the layers of the system modelled as a hierarchical structure

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