PROPAGATION OF ECONOMIC SHOCKS IN HIERARCHICAL STRUCTURES AND NETWORKS. THE CASE OF THE EUROPEAN UNION

Abstract

In this paper, we propose an analytical framework for understanding economic shocks from the perspective of systems theory and complexity. Unlike approaches that view shocks primarily as exogenous disturbances, this article argues that they should be understood as processes that emerge within the economic system through interactions among the triggering event, the system’s structure, and transmission mechanisms. In this regard, the economic system is analysed as a structure of interdependencies that can take the form of hierarchical or network-type architectures. The analysis thus highlights that the way these interdependencies are organised influences the dynamics of shocks. In hierarchical structures, propagation tends to be more sequential and easier to localise. At the same time, in networks, the propagation of shocks occurs through multiple channels, making it more sensitive to feedback mechanisms, thresholds, and cumulative effects. The analytical framework developed is applied to the case of the European Union, interpreted as a system of interdependencies characterised by high levels of trade and financial integration but incomplete fiscal integration. The analysis shows that this configuration favours the rapid and differentiated propagation of shocks, accentuating asymmetries among Member States. The paper contributes to the literature on economic shocks by integrating a systemic perspective, highlighting the role of the system’s architecture in their dynamics, and formulating implications for economic policy in interdependent systems.