The Economic Impact of COVID-19 Crisis Based on Complex Network Evolution Model

ABSTRACT

The Covid-19 crisis impacts the economy with non-equilibrium and non-linear shocks. This paper builds a trading network model based on the theory of trading economics. Using the network model, the evolutionary procedure of the economic depression triggered by the shocks are researched. The study shows that under the impact of shocks, small and medium-sized trading agents with weak profitability will first experience cash flow crisis. Then the crisis contagion is formed in upstream and downstream through the trading network. The credit reduction caused by the business deterioration will make the interest rate in the economy increase and promote each other with the bankruptcy of trading entities. Eventually, it leads to the feedback loop in liquidity crisis and debt crisis, which accelerates the bankruptcy of enterprises and possibly causing a debt crisis in the banking sector. It is found that after the shock, the economic recovery may take three patterns stable recovery, slow recession and secondary crisis. Finally, the paper proposes relevant policy recommendations to reduce the impact of the crisis. © 2023 Editorial Borad of Complex Systems and Complexity Science. All rights reserved.