Production Networks and Shock Propagation in Central America and Mexico: A Comparative Analysis

We study how sectoral shocks propagate through production networks in Central America and Mexico. Using annual inputoutput matrices for 19912023, we construct upstream and downstream production networks for ten regional economies and quantify both the direct and indirect effects of trade shocks. Adopting a granular, network-based framework, we show that production structure plays a critical role in shaping shock transmission and amplification. Trade integration with the United States operates through distinct structural channels across countries. In economies such as Mexico, reductions in U.S. trade generate negative regional effects through supply-chain disruptions and strong upstream linkages, whereas in most other countries in the region trade shocks produce positive downstream amplification effects. The density and configuration of production networks further condition the intensity of propagation, with Mexico displaying strong upstream amplification while more enclave-type economies exhibit comparatively limited spillovers. We also identify structurally comparable benchmark countries worldwide to facilitate meaningful cross-country analysis. Taken together, our findings provide a novel empirical framework for policy analysis centered on structural transformation and trade integration in developing economies.