Firm-Level Simulation of the Propagation of Economic Shocks Through Supply-Chain Networks

Nature Sustainability 2 , 841–847 (2019)

25 Pages Posted: 27 Nov 2017 Last revised: 1 Apr 2020

See all articles by Hiroyasu Inoue

Hiroyasu Inoue

University of Hyogo, Graduate School of Information Science

Yasuyuki Todo

Waseda University

Date Written: November 20, 2017

Abstract

Social and economic networks can be a channel of negative shocks and thus deteriorate resilience and sustainability of our society. This study focuses on supply chains, or supplier--customer networks of firms and examines how production losses caused by natural disasters propagate to and persist in regions not directly hit through supply chains. We apply an agent-based model to the actual supply chains of nearly one million firms in Japan to estimate the direct and indirect effects of the 2011 Great East Japan earthquake. We then employ the same model to predict the effect of the Nankai earthquake, a mega earthquake predicted to hit major industrial cities in Japan in the near future. We find that the indirect effects of the disasters on production due to propagation (10.6% of GDP in the case of the Nankai earthquake) are significantly larger than their direct effects (0.5%). Our simulation analyses to compare the actual network with hypothetical networks suggest that these substantial indirect effects are more prominent and persistent when supply chains are characterized by scale-free properties, difficulty in substitution among intermediate products, and the complexity caused by cycles in networks.

Keywords: supply chain, propagation, disaster, agent, simulation, high performance computing

JEL Classification: L14

Suggested Citation

Inoue, Hiroyasu and Todo, Yasuyuki, Firm-Level Simulation of the Propagation of Economic Shocks Through Supply-Chain Networks (November 20, 2017). Nature Sustainability 2 , 841–847 (2019), Available at SSRN: https://ssrn.com/abstract=3074997 or http://dx.doi.org/10.2139/ssrn.3074997

Hiroyasu Inoue (Contact Author)

University of Hyogo, Graduate School of Information Science ( email )

7-1-28 Minato-jima, Minami-machi
Chuo-ku
Kobe, Hyogo 650-0047
Japan

Yasuyuki Todo

Waseda University ( email )

1-104 Totsukamachi, Shinjuku-ku
tokyo, 169-8050
Japan

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