Hierarchical Communities in the Walnut Structure of Japanese Production Networks

Author Name Abhijit CHAKRABORTY (University of Hyogo) / KICHIKAWA Yuichi (Niigata University) / IYETOMI Hiroshi (Niigata University) / IINO Takashi (Niigata University) / INOUE Hiroyasu (University of Hyogo) / FUJIWARA Yoshi (University of Hyogo) / AOYAMA Hideaki (Faculty Fellow, RIETI)
Creation Date/NO. April 2018 18-E-026
Research Project Large-scale Simulation and Analysis of Economic Network for Macro Prudential Policy
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The structure of Japanese production networks with one million firms and five million supplier-customer links is studied. It is found that they form a tightly-knit structure with a core giant strongly connected component (GSCC) surrounded by IN and OUT components constituting two half-shells for the GSCC, which we name the Walnut structure after its shape. The hierarchical structure of communities is studied by the Infomap method and most of the irreducible communities are found to be on the second level. Composition of some of the major communities, including overexpression of industrial and regional nature, as well as connections between the communities, is studied in detail. The findings obtained here cast doubt on the validity and accuracy of the conventional input-output analysis, which is expected to be useful if firms in the same sectors would be well connected with each other.