An index of static resilience in interindustry economics

Abstract

AbstractWe introduce a novel static indicator of economy-wide resilience that assesses an economy’s ability to adapt and recover from negative shocks originating from either the demand or supply side. This metric is counterfactual and, through simulation, reveals the extent of adjustments required to maintain total income at or above the initial pre-shock level while preserving the initial economic structure. The larger the scale of adjustments needed in response to the shock, the lower the resilience of the economic system. The methodology we propose for this assessment relies on the concept of constrained input–output multipliers embedded within a linear programming problem. We demonstrate the applicability of our approach by calculating and comparing demand and supply resilience indices for a group of ten large OECD economies. In all these economies, the results indicate that manufacturing industries exhibit higher resilience to demand shocks than service sectors and that economic resilience regarding negative supply shocks is higher than that of demand shocks.