Hierarchical and Circular Flow Structure of Interfirm Transaction Networks in Japan

23 Pages Posted: 20 May 2018

See all articles by Yuichi Kichikawa

Yuichi Kichikawa

Niigata University

Hiroshi Iyetomi

Niigata University

Takashi Iino

Niigata University

Hiroyasu Inoue

University of Hyogo - Graduate School of Simulation Studies

Date Written: May 4, 2018

Abstract

The objective of this study is to shed new light on industrial flow structure embedded in microscopic supplier-buyer relations. We first construct directed networks from actual data of interfirm transaction relations in Japan containing five million links between one million firms. And then we analyze the industrial flow structure of such large-scale networks with a special emphasis on its hierarchy and circularity. The Helmholtz-Hodge decomposition enables us to break down flow on a directed network into two flow components: potential flow and circular flow. The potential flow between a pair of nodes is given by difference of their potentials, and hence, the potential of a node quantifies its hierarchical position in a network. On the other hand, the circular flow component illuminates feedback loops built in a network; it can be an engine of economic growth in the industrial system. The potential values averaged over firms classified by the major category of industry describe hierarchical characteristics of the sectors. Their ordering from upstream to downstream agrees well with the general idea on the supply chain. We also identify dominant clusters of firms forming feedback loops by applying a flow-based community detection method to the extracted circular flow network.

Keywords: interfirm transaction network, hierarchical structure, potential flow, circular flow, Helmholtz-Hodge decomposition, community detection

JEL Classification: D57, D85, L14

Suggested Citation

Kichikawa, Yuichi and Iyetomi, Hiroshi and Iino, Takashi and Inoue, Hiroyasu, Hierarchical and Circular Flow Structure of Interfirm Transaction Networks in Japan (May 4, 2018). Available at SSRN: https://ssrn.com/abstract=3173955 or http://dx.doi.org/10.2139/ssrn.3173955

Yuichi Kichikawa

Niigata University ( email )

8050 Ikarashi 2 Nocho Nishi Ward
Niigata Prefecture
Niigata, 950-218
Japan

Hiroshi Iyetomi (Contact Author)

Niigata University ( email )

8050 Ikarashi-2-cho
Nishi-ku
Niigata, 9502181
Japan

Takashi Iino

Niigata University ( email )

8050 Ikarashi 2 Nocho Nishi Ward
Niigata Prefecture
Niigata, 950-218
Japan

Hiroyasu Inoue

University of Hyogo - Graduate School of Simulation Studies ( email )

7-1-28 Minato-jima, Minami-machi
Chuo-ku
Kobe, Hyogo 650-0047
Japan

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