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    Review of 'Many-to-one contagion of economic growth rate across trade credit network of firms'

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    Many-to-one contagion of economic growth rate across trade credit network of firms
    Paper proposes novel approach to test contagion in trade credit network
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        Rated 3.5 of 5.
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        Rated 3 of 5.
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    Many-to-one contagion of economic growth rate across trade credit network of firms

    We propose a novel approach and an empirical procedure to test direct contagion of growth rate in a trade credit network of firms. Our hypotheses are that the use of trade credit contributes to contagion (from many customers to a single supplier - "many to one" contagion) and amplification (through their interaction with the macrocopic variables, such as interest rate) of growth rate. In this paper we test the contagion hypothesis, measuring empirically the mesoscopic "many-to-one" effect. The effect of amplification has been dealt with in another paper. Our empirical analysis is based on the delayed payments between trading partners across many different industrial sectors, intermediated by a large Italian bank during the year 2007. The data is used to create a weighted and directed trade credit network. Assuming that the linkages are static, we look at the dynamics of the nodes/firms. On the ratio of the 2007 trade credit in Sales and Purchases items on the profit and loss statements, we estimate the trade credit in 2006 and 2008. Applying the "many to one" approach we compare such predicted growth of trade (demand) aggregated per supplier, and compare it with the real growth of Sales of the supplier. We analyze the correlation of these two growth rates over two yearly periods, 2007/2006 and 2008/2007, and in this way we test our contagion hypotheses. We could not find strong correlations between the predicted and the actual growth rates. We provide an evidence of contagion only in restricted sub-groups of our network, and not in the whole network. We do find a strong macroscopic effect of the crisis, indicated by a coincident negative drift in the growth of sales of nearly all the firms in our sample.
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      10.14293/S2199-1006.1.SOR-ECON.A1506.01734.v1.RRSFTF
      This work has been published open access under Creative Commons Attribution License CC BY 4.0, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. Conditions, terms of use and publishing policy can be found at www.scienceopen.com.

      General economics,Economics
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      The paper is well-written and presents a clear methodology for testing the hypothesis. The authors provide a detailed description of the data used in the analysis and the approach taken to analyze the data. However, the paper only provides evidence of contagion in restricted sub-groups of the network and not in the whole network. The authors acknowledge this limitation and suggest that future research could explore the reasons for the absence of contagion in the whole network. The methodology presented in the paper could be useful for future research in this area. The paper could benefit from further analysis to explore the reasons for the absence of contagion in the whole network.

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