Inter-city Trade Networks in Turkey: Shocks and Spillovers

Trade among the cities of a country is similar to international trade in various aspects. Recently there is a surge of studies focusing on the network characteristics of international trade. We extend the main idea and the methodology of these studies to the inter-city trade network in Turkey in order to model and trace the network spillovers of a given shock (i.e. intensification of Syrian conflict and hence the drop of income in Southeastern cities) on the overall income and intercity trade volume. ntercity trade can be considered as a network. This trade network can be represented as a directed, weighted, incomplete, and asymmetric graph in which each city is a node and the bilateral trade links are the edges. The network is directed as each city is unlikely to trade at equal amounts from each other. The network is weighted because all links reflect some value of payment that is different for each city and each flow. The network is incomplete as not all cities in Turkey are connected with each other through trade. Finally, the network is asymmetric because for most cities customer partners (out-links) differs from the number of supplier partners (in-links). The ministry of Science, Technology and Industry provides intercity trade data for the year 2013. First we construct the intercity trade network derived from the data. Second we follow, Kireyev and Leonidev (2015) method to model and trace the network spillovers of a given shock (i.e. intensification of Syrian conflict and hence the drop of income in Southeastern cities) on the overall income and intercity trade volume. The main insight of the network modelling approach is the following. Once a source city faces a shock in terms of income loss, its purchases from its first neighbour cities will be affected. Then the these cities will face adverse effects in terms of income and so their neighbour cities will have to bear the spillover effects. This network contagion will have an aggregate effect which will be larger than the direct effect. Ten percent drop in income of the Southeastern cities which constitute about 10 % of the GDP of Turkey will have a significant effect on the overall income and inter-city trade volume in Turkey