Sector-specific shock propagation heterogeneity in international production networks: case of EU regions

This article examines sector-specific heterogeneity in shock propagation across international production networks. The study investigates whether the impact of sectoral shocks on regional output depends on two structural characteristics of European regions: their geographical and economic proximity to other regions and the degree of industrial diversification. The empirical analysis is based on the EUREGIO interregional input-output database covering 252 NUTS2 regions of the EU-2006 and twelve aggregated economic sectors for 2010. Shock propagation is modelled using the hypothetical extraction method, which simulates the temporary removal of an industry from international intersectoral production linkages. Geographical and economic proximity is measured by the geographically weighted location quotient, while industrial diversification is assessed using the Herfindahl-Hirschman Index. The results reveal substantial sectoral heterogeneity in shock propagation. Strong positive relationships between regional vulnerability to shocks and both explanatory variables are identified for knowledge-intensive service sectors, particularly real estate and business services and financial intermediation. A weaker positive relationship is observed in electrical, optical and transport equipment, whereas mining and energy supply demonstrate an inverse relationship. No systematic relationship is found for labour-intensive sectors such as agriculture, textiles, and food production. The findings suggest that knowledge-intensive services play a systemic role in transmitting shocks across European production networks, while greater industrial diversification enhances regional resilience by mitigating the economic consequences of sector-specific disruptions. These results contribute to the understanding of regional competitiveness, resilience and the structural determinants of shock propagation in international production networks.