This paper investigates the joint dynamics of economic growth and volatility in the context of international production networks. We develop a model that embeds the global input-output network to quantify how international trade shapes the joint dynamics of growth and volatility. Using the World Input–Output database, we estimate a dynamic multi-factor model that decomposes country-level output growth into a global component and idiosyncratic shocks.
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 economic 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.
We emphasise that sustained economic 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).