Researchers from the Complexity Science Hub (CSH) have conducted a groundbreaking study using firm-level data from the global supply network to assess countries’ vulnerability to production losses triggered by firm defaults abroad. Their findings are of utmost importance, revealing that affluent countries are primarily at risk from supply chain disruptions originating from other wealthy nations. In stark contrast, less developed and poorer nations face risks from disruptions across all countries, underscoring the global nature of supply chain vulnerabilities.

Tobias Reisch, a CSH scientist, explains their data’s robustness: “Our data, sourced from Standard & Poor’s Capital IQ platform, holds information on most of the world’s significant companies. It covers around 230,000 companies across 206 countries, offering an unparalleled comprehensive overview of the global supply chain network.” Reisch, one of the primary authors of the study published in Nature Communications, adds that the data includes details on almost one million corporate relationships, meticulously mapping the flow of goods and services internationally.

The team at CSH also simulated various economic shocks to understand their potential impact on the supply chain. These hypothetical scenarios included infrastructure failures, like a bridge collapse in Baltimore, and natural disasters, like an earthquake in Taiwan. They studied how these disruptions would interrupt the flow of goods and services and observed the propagation of these shocks within the networks.

Stefan Thurner, the study’s senior author and president of CSH, noted that while high-income countries tend to have a broader impact, spreading systemic risk beyond their regions, low-income countries suffer disproportionately from high exposure levels. This finding contradicted their initial expectations. “We thought that richer, industrialized countries would be more affected due to their deeper integration into global value chains. However, it turns out they are less affected by economic shocks but are instead major contributors to these shocks,” says Reisch. He points out that these countries often have more diversified economies or occupy different positions within the supply networks, thereby exposing other countries more than they are exposed to.

The study also highlights that exposure to supply chain disruptions is highly structured on a regional level, suggesting that companies are most vulnerable to shocks within their borders. “This underscores the strong local or national integration of firms within their supply chains, with similar regional dependencies observed in Africa and Europe,” Reisch elaborates.

The CSH researchers also address the issue of structural inequality in supply networks between countries. They suggest that it is crucial to understand the processes that allow firms from various income levels to engage in production and trade relations—and how to do so with reduced risk exposure to poorer nations. The authors propose a potential strategy for creating more resilient, fair, and sustainable supply chains: introducing a ‘systemic risk tax’ on international supply networks. “This idea draws on concepts we previously developed for enhancing resilience in financial markets. The complexity of supply chains means more research is needed to refine this taxing scheme,” explains Thurner.

More information: Abhijit Chakraborty et al, Inequality in economic shock exposures across the global firm-level supply network, Nature Communications. DOI: 10.1038/s41467-024-46126-w

Journal information: Nature Communications Provided by Complexity Science Hub