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Mapping Financial Connections: Market Integration in Emerging Economies through Graph Theory

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  • Marc Cortés Rufé

    (Department of Business, Faculty of Economics and Business, University of Barcelona, 08034 Barcelona, Spain)

  • Jordi Martí Pidelaserra

    (Department of Business, Faculty of Economics and Business, University of Barcelona, 08034 Barcelona, Spain)

Abstract

In this study, we explore the financial and economic integration of BRICS nations (Brazil, Russia, India, China, and South Africa) and key emerging economies (Egypt, Saudi Arabia, and the UAE) using graph theory, aiming to map intersectoral connections and their impact on financial stability and market risk. The research addresses a critical gap in the literature; while political and economic linkages between nations have been widely studied, the specific connectivity between sectors within these economies remains underexplored. Our methodology utilizes eigenvector centrality and Euclidean distance to construct a comprehensive network of 106 publicly listed firms from 2013 to 2022, across sectors such as energy, telecommunications, retail, and technology. The primary hypothesis is that sectors with higher centrality scores—indicative of their interconnectedness within the broader financial network—demonstrate greater resilience to market volatility and contribute disproportionately to sectoral profitability. The analysis yielded several key insights. For instance, BHARTI AIRTEL LIMITED in telecommunications exhibited an eigenvector centrality score of 0.9615, positioning it as a critical node in maintaining sectoral stability, while AMBEV SA in the retail sector, with a centrality score of 0.9938, emerged as a pivotal player influencing both profitability and risk. Sectors led by companies with high centrality showed a 20% increase in risk-adjusted returns compared to less connected entities, supporting the hypothesis that central firms act as stabilizers in fluctuating market conditions. The findings underscore the practical implications for policymakers and investors alike. Understanding the structure of these networks allows for more informed decision making in terms of investment strategies and macroeconomic policy. By identifying the central entities within these economic systems, both policymakers and investors can target their efforts more effectively, either to support growth initiatives or to mitigate systemic risks. This study advances the discourse on emerging market integration by providing a quantitative framework to analyze intersectoral connections, offering critical insights into how sectoral dynamics in emerging economies influence global financial trends.

Suggested Citation

  • Marc Cortés Rufé & Jordi Martí Pidelaserra, 2024. "Mapping Financial Connections: Market Integration in Emerging Economies through Graph Theory," Risks, MDPI, vol. 12(10), pages 1-33, September.
    • Handle: RePEc:gam:jrisks:v:12:y:2024:i:10:p:154-:d:1488800
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    References listed on IDEAS

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    2. Yuwen Dai, 2023. "Business Cycle Synchronization and Multilateral Trade Integration in the BRICS," Chinese Economy, Taylor & Francis Journals, vol. 56(3), pages 163-181, May.
    3. Hong, Seungki, 2023. "MPCs in an emerging economy: Evidence from Peru," Journal of International Economics, Elsevier, vol. 140(C).
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