Policy Design from a Network Perspective: Targeting a Sector, Cascade of Links, Network Resilience

A computational methodology is proposed to: (i) characterize the upstream and/or downstream network of a targeted sector i, (ii) uncover the cascade of layers of links in the network, and (iii) measure the degree of network resilience. The methodology is implemented using Turkiye's 2018 input-output data to characterize the gaps and the type of policy reforms required to address them in the context of the targeted manufacturing sector. Market and competition policy reforms are discussed from a network perspective in such a way as to enhance the productivity of the manufacturing sector. Three findings are noteworthy. First, production activities of the manufacturing sector have strong links with regulated general purpose service sectors, including financial, energy-water-gas, and transport and ICT. Therefore, improved competition in the manufacturing sector will not necessarily increase its productivity even if competition policies perfectly support the market for manufacturing products. Second, the source-sink structure of Turkiye's manufacturing network illustrates that the manufacturing sector is the most dominant, whereas transport-ICT, energy-water-gas, and construction sectors are the potential sinks where large chunk of input flow ends up. Third, the cascade of three layers of links suggests that the upstream network of the manufacturing sector has a moderate level of resilience against the complete disruption of the intermediate layer.