This project examines the dynamics between economic growth, volatility, and international trade networks, emphasising their implications within global economic modelling frameworks. Using the data from inter-country input-output tables covering the period since 1995, we quantify country-specific growth trajectories through a factor-model approach. The decomposition into global common shocks and idiosyncratic country-specific shocks allows for the understanding of the drivers behind economic volatility at the macroeconomic level.
The preliminary results highlight considerable variations in country-level responses to global macroeconomic shocks. Advanced economies, particularly Western countries, demonstrate heightened sensitivity to global economic fluctuations, while many rapidly developing Asian economies exhibit reduced vulnerability, suggesting distinct regional shock-absorption capacities and macroeconomic resilience. The analysis further integrates international trade dynamics, underscoring the dual role of trade as both a facilitator of growth and a channel for external shock transmission.
Incorporating economic indicators beyond traditional GDP metrics, such as the Human Development Index, enhances the study’s robustness by capturing a more holistic view of economic development. We emphasise that sustained macroeconomic stability and growth require strategic diversification of economic sectors and technological inputs. The insights generated have direct implications for macroeconomic policy formulation, including recommendations on trade liberalisation, diversification strategies, and regional economic cooperation to manage volatility and promote stable economic growth.
Work-in-progress paper in collaboration with Johannes Lumma (Oxford).