The spreading of shocks in the north america production network and its relation to the properties of the network

Abstract

We evaluate the short-run effect of a shock in the manufacturing sector in the North America Production Network. We use input–output data for Canada, Mexico, the USA, and the North America region. With this data we represent the economies as networks and apply a network diffusion model and execute computer simulations according to different escenarios. We then study the relation between the effects of the shock and the structure of the networks by computing structural properties of sectors. Results show the limited effects of a shock on the manufacturing sector, and thus shed light on the heterogeneous impacts of the trade agreement of the region. They provide useful information to design an industrial policy focused on the development of the production network. In particular, we focus on recommendations for the Mexican economy.