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Measuring the systemic importance of interconnected industries in the world economic system

Xian Cheng (Department of Electronic Commerce and Information Management, Southwest Jiao Tong University, Chengdu, China)
Liao Stephen Shaoyi (Department of Information Systems, City University of Hong Kong, Hong Kong, China)
Zhongsheng Hua (School of Management, Zhejiang University, Hangzhou, China)

Industrial Management & Data Systems

ISSN: 0263-5577

Article publication date: 6 February 2017

487

Abstract

Purpose

The purpose of this paper is to measure the systemic importance of industry in the world economic system under the system-wide event – the crisis of 2008-2009, by viewing this system as a weighted directed network of interconnected industries.

Design/methodology/approach

First, the authors investigate this crisis at three different levels based on network-related indicators: the “macro” global level, the “meso” country level, and the “micro” industry level. This investigation not only provides evidence for the systemic influence, that is, systemic risk, of the crisis, but also reveals the contagion mechanism of the crisis, which supports the stress testing. Second, the authors use a network-related business intelligence algorithm, the combined hyperlink-induced topic search (HITS) algorithm, to measure the contribution of a given individual industry to the overall risk of the economic system or, in other words, the systemic importance of the individual industry.

Findings

The HITS algorithm considers both the market information and the interconnectedness of the industries. Based on the stress testing, the performance of the combined HITS is compared with the purely market-based systemic risk measurement. The results show that the combined HITS outperforms the baseline in finding the top N systemically important industries.

Practical implications

The combined HITS algorithm provides a novel network-based perspective of systemic risk measurement.

Originality/value

Measuring the systemic importance based on the combined HITS algorithm can help managers and regulators design effective risk management policies. In this respect, the work initiates a research direction of studying the systemic risk in a business system based on a network-related business intelligence algorithm because the business system can be viewed as an interconnected network.

Keywords

Acknowledgements

This research was supported by the National Science-technology Support Plan (project no. 2015BAK18B02); the Guangdong Provincial Technology Scheme (Grant No. 2015A020217007); the development grants from Shenzhen Science, Technology and Innovation Commission (Grant Nos. ZDSYS20140509155229805 and JCYJ20160229165300897); and a Hong Kong GRF grant (Grant No. 193213).

Citation

Cheng, X., Shaoyi, L.S. and Hua, Z. (2017), "Measuring the systemic importance of interconnected industries in the world economic system", Industrial Management & Data Systems, Vol. 117 No. 1, pp. 110-130. https://doi.org/10.1108/IMDS-10-2015-0442

Publisher

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Emerald Publishing Limited

Copyright © 2017, Emerald Publishing Limited

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