Detecting early signs of the 2007–2008 crisis in the world trade

Abstract

Since 2007, several contributions have tried to identify early-warning signals of the financial crisis. However, the vast majority of analyses has focused on financial systems and little theoretical work has been done on the economic counterpart. In the present paper we fill this gap and employ the theoretical tools of network theory to shed light on the response of world trade to the financial crisis of 2007 and the economic recession of 2008–2009. We have explored the evolution of the bipartite World Trade Web (WTW) across the years 1995–2010, monitoring the behavior of the system both before and after 2007. Our analysis shows early structural changes in the WTW topology: since 2003, the WTW becomes increasingly compatible with the picture of a network where correlations between countries and products are progressively lost. Moreover, the WTW structural modification can be considered as concluded in 2010, after a seemingly stationary phase of three years. We have also refined our analysis by considering specific subsets of countries and products: the most statistically significant early-warning signals are provided by the most volatile macrosectors, especially when measured on developing countries, suggesting the emerging economies as being the most sensitive ones to the global economic cycles.

From Ecology to Finance (and Back?): A Review on Entropy-Based Null Models for the Analysis of Bipartite Networks

“…of the similarity of export baskets, before the financial crisis [79]. This development Note that the last results do not imply any causal relation, as discussed in [79]. However, the dramatic evolution of the closed motifs anticipated the crisis.…”

“…Although purely data-based analyses provide valuable insight into the mechanisms of networks, recent results have shown that such structures contain more information than is apparent at first sight. In particular, several techniques have been designed based on statistical physics and information theory, which provide the possibility to filter statistically relevant signals from the network that otherwise remain hidden when the data is take at face value [80,79,88,49,85].…”

“…Furthermore, we review how such null models can be used to reconstruct networks when only partial or noisy data is available, and how this method can be applied to asses systemic risk in financial networks [31,85,49]. In addition, we illustrate how Ricardo's specialization hypothesis in international trade [75] can be reconciled with the apparently contradicting export diversification signal that has been observed [22], and how early warning signs are revealed preceding the financial crisis of 2008 [79].…”

A New and Stable Estimation Method of Country Economic Fitness and Product Complexity

“…with now allFc andPp set to be equal to their mean field valuef andp, respectively. By setting δ = 0, we findp = 1/(1 − C P ) ≈ 1 + C P andf = P − C. Indeed, an approximate expression for the fixed point of Equation (6) in the regime δ 1 and C P can be derived also beyond the mean field approximation. To this end, we set again δ = 0 and consider the corresponding fixed point equation associated to Equation (6), i.e.…”

Reconstruction methods for networks: The case of economic and financial systems

“…A particularly interesting issue concerns the detection of early-warning signals of upcoming critical events. As shown in [127], this can be done by computing z X for each temporal snapshot of the considered system 16 and, then, plotting z X (t) versus t. As far as the discrepancy between observed and expected values evolves "smoothly" from out-of-equilibrium to equilibrium states (or vice-versa), early-warning signals can be possibly detected [128,129], An important aspect of a network to be tested for statistical significance is, without doubts, its mesoscale organization into modules or communities. An approach similar to what presented in the previous subsection works as follows [130].…”