Global Value Chains and Systemic Risk: Evidence from China and the G7 Countries

This study aims to explore systemic risk contagion from the upstream and downstream linkages of the global value chains (GVCs). Using stock market data and multi-regional input-output tables (MRIO) of 83 industries in eight countries during 2013–2021, systemic risk is found to mostly emerge from core supplier-customer network industries, subsequently spreading across intermediate goods and capital chains. Owing to proximity, risk contagion is stronger within the same country or industry; during major public events (MPEs), the effect of linkages on risk contagion is greater. Further, we find that the propagation of systemic risk varies over time; long-term systemic risk follows a transmission path which correlates with the industry’s GVC position; geopolitics and economic policy uncertainty can increase short-term systemic risk. We also propose policy recommendations for managers, regulators, and investors.