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The world has become more interconnected over the past few decades. Against this backdrop, economic and financial contagion following adverse shocks can have a severe impact on the global economy. How systemic can the effects of contagion be? What specific transmission channels are involved? What is their relative importance? We address these questions using a multilayered global network model of contagion that simulates the impact of sovereign debt default on the global economy. We also develop a measure of global systemic risk and use bank stress testing techniques to quantify the systemic impact of the shock and the extent of contagion on the global economy. Our model shows that economic and financial contagion are highly non-linear, and many bystander economies can experience significant negative effects as the initial default is spread through the network. This suggests that many economies might be systemically more important than what conventional measures of size or openness might suggest.

Macroeconomics --- Economics: General --- Exports and Imports --- Finance: General --- Banks and Banking --- Econometric and Statistical Methods: Special Topics: General --- Neural Networks and Related Topics --- International Finance: General --- Open Economy Macroeconomics --- Globalization: Finance --- Financial Crises --- International Financial Markets --- International Lending and Debt Problems --- General Financial Markets: Government Policy and Regulation --- Monetary Policy --- Current Account Adjustment --- Short-term Capital Movements --- Trade: General --- Economic & financial crises & disasters --- Economics of specific sectors --- Finance --- International economics --- Banking --- Debt default --- External debt --- Financial contagion --- Financial sector policy and analysis --- International reserves --- Central banks --- Portfolio investment --- Balance of payments --- Imports --- International trade --- Currency crises --- Informal sector --- Economics --- Debts, External --- Financial risk management --- Foreign exchange reserves --- Portfolio management --- Russian Federation

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This analysis of the extent of trade integration of sub-Saharan African (SSA) countries in the global economy as well as within the region over the 1995–2013 period focuses on four key concepts: (1) trade openness, captured by import and export flows; (2) the centrality in the global and regional trade network, a measure that takes into account not only the size of trade but also the number of trade partners and the respective weight of these trade partners in global trade; (3) gravity model estimates that account for country- and region-specific determinants of bilateral trade flows; and (4) global value chain (GVC) integration. Using both existing data and a newly available dataset based on multiregion input and output tables, this analysis led to several findings: (1) trade openness has increased strongly; (2) integration in the global economy has made the region more vulnerable to external shocks; (3) levels of trade flows emanating from sub-Saharan Africa are still only half the magnitude of those experienced elsewhere in the world; (4) the region still has ways to go to better integrate in GVCs; and (5) it is more critical than ever to make progress in filling the infrastructure gap by lowering tariff and nontariff barriers, improving the business climate and access to credit, and continuing to enhance education outcomes.

Customs unions --- Economic development --- Africa, Sub-Saharan --- Economic integration. --- Development, Economic --- Economic growth --- Growth, Economic --- Economic policy --- Economics --- Statics and dynamics (Social sciences) --- Development economics --- Resource curse --- Free trade areas --- Tariff unions --- Commercial policy --- International economic integration --- Second best, Theory of --- Tariff --- Africa, Black --- Africa, Subsaharan --- Africa, Tropical --- Africa South of the Sahara --- Black Africa --- Sub-Sahara Africa --- Sub-Saharan Africa --- Subsahara Africa --- Subsaharan Africa --- Tropical Africa --- Exports and Imports --- Taxation --- Globalization --- Trade: General --- Empirical Studies of Trade --- Trade Policy --- International Trade Organizations --- Globalization: General --- International economics --- Public finance & taxation --- Exports --- Trade balance --- Regional trade --- Global value chains --- Tariffs --- International trade --- Taxes --- Balance of trade --- South Africa