A 3D index for measuring economic resilience with application to modern financial crises

Abstract

This paper proposes a vector index R composed of monotonous functions capturing three theoretical aspects (3D) of economic resilience (engineering, ecological, evolutionary) and performs an analysis of GDP data of 200 countries worldwide for the period 1960–2020 and 15 economic crises (shocks). The empirical analysis, first, reveals that economic resilience appears positively related to gross value added (GVA), employment, education, sectorial structure and diversification, agricultural production, tax revenue and natural resources, whereas it is negatively associated with urbanization degree, primary sector specialization and trade activity. Also, it shows that the global economy shifted to a less resilient performance through time, and it reveals the pros and cons of the continents' performance in economic resilience, highlighting a relative sensitivity of European countries against the available shocks and relatively higher resilience of Asian and African countries. Finally, the analysis of transition probabilities reveals the 2008 economic crisis as the only shock with significant transitions among different states of resilience, providing insights into the insignificant geographical scale of previous shocks in the global economy. Overall, in the complex conceptualization and measurement framework of economic resilience, the proposed 3D index contributes to a multilevel consideration of diverse theoretical aspects of this concept, provides empirical insights into the global economy's resilience and facilitates better management of economic resilience‘s computational complexity.