Quantifying Firm-Level Economic Systemic Risk from Nation-Wide Supply Networks

Crises like COVID-19 or the Japanese earthquake in 2011 exposed fragility of corporate supply networks. The production goods and services is a highly interdependent process can be severely impacted by default critical suppliers customers. While knowing impact individual companies on national economies prerequisite for efficient risk management, quantitative assessment involved economic systemic risks (ESR) hitherto practically non-existent, mainly because lack fine-grained data combination with coherent methods. Based unique value added tax dataset we derive detailed network an entire country present novel approach computing ESR all firms. We demonstrate that tiny fraction (0.035%) has extraordinarily high impacting about 23% should any them default. Firm size alone cannot explain companies; their position networks does matter substantially. If are ranked according to index (ESRI), firms rank above characteristic have very similar ESRI values, while rest distribution decays slowly as power-law; 99.8% less than 1% economy. show impossible aggregate used traditional Input-Output Economics. discuss how simple policies introducing chain redundancies reduce some extremely risky companies.