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How Vulnerable is India's Economy to Foreign Sanctions?

Vipin P. Veetil

Abstract

This paper develops a simple model of the world supply chain to estimate the effects of sanctions that restrict the flow of inputs from one country to another. Such restrictions operate through changes in the weights of the global production network: the sanctioning country ceases supplying certain inputs to the target country and reallocates its production to other destinations. Using the OECD Inter-Country Input--Output tables, we calibrate the model to assess the vulnerability of the Indian economy. We consider two classes of counterfactuals: restrictions on a single sector of a foreign country supplying India, and restrictions on all sectors of a foreign country supplying India. We then rank foreign countries and foreign country-sectors by the risk that their supply restrictions pose to economic activity in India. Our results show that India's greatest country-level vulnerability is to Saudi Arabia, followed by the United Arab Emirates, China, Singapore, the United States, and Russia.

How Vulnerable is India's Economy to Foreign Sanctions?

Abstract

This paper develops a simple model of the world supply chain to estimate the effects of sanctions that restrict the flow of inputs from one country to another. Such restrictions operate through changes in the weights of the global production network: the sanctioning country ceases supplying certain inputs to the target country and reallocates its production to other destinations. Using the OECD Inter-Country Input--Output tables, we calibrate the model to assess the vulnerability of the Indian economy. We consider two classes of counterfactuals: restrictions on a single sector of a foreign country supplying India, and restrictions on all sectors of a foreign country supplying India. We then rank foreign countries and foreign country-sectors by the risk that their supply restrictions pose to economic activity in India. Our results show that India's greatest country-level vulnerability is to Saudi Arabia, followed by the United Arab Emirates, China, Singapore, the United States, and Russia.
Paper Structure (14 sections, 36 equations, 6 figures)

This paper contains 14 sections, 36 equations, 6 figures.

Table of Contents

  1. Introduction
  2. Related Literature
  3. Organization of the paper
  4. A Model of Supply Disruptions
  5. The network
  6. Existence and stability of equilibrium
  7. Supply Restrictions
  8. Propagation of a sanction shock
  9. Empirical Assessment of the Impact of Foreign Supply Restrictions on the Indian Economy
  10. Statistics on the impact of supply restrictions
  11. Calibration of the model
  12. Country-sector vulnerability
  13. Country vulnerability
  14. Concluding Thoughts

Figures (6)

  • Figure 1: The network of intermediate-input flows between countries. The graph contains the flows of 80 countries in the OECD input-output table. Node sizes reflect the total production of intermediate inputs by each country. India is marked in blue, as are the flows of intermediate inputs into India.
  • Figure 2: India's vulnerability to the closure of intermediate-input flows from specific foreign country-sectors.
  • Figure 3: India's vulnerability to the closure of intermediate-input flows from specific foreign country-sectors, excluding sectors that produce oil and gas.
  • Figure 4: The distribution of India's vulnerability to the complete closure of intermediate-input flows from specific foreign country-sectors.
  • Figure 5: India's vulnerability to the complete closure of intermediate-input flows from all sectors of a foreign country.
  • ...and 1 more figures

Theorems & Definitions (1)

  • Definition 1: Vulnerability Index