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Economic networks consist of individuals, groups, organizations, communities, or nations working together to increase production capacity and economic growth. They can have fixed, rotating, or changing membership and aim to increase members’ market position. Information is a valuable asset, and networks are formed to gather, share, and respond to it. However, economic networks can buckle when exposed to distrust, lack of transparency, and opportunistic actions. Optimizing network structure is essential for economic sustainability and system stability.
Simply defined, an economic network consists of individuals, groups, organizations, communities, or entire nations working together to benefit all members of the network. Leveraging all the competitive advantages, assets and resources of all members, the economic network aims to increase the production capacity and economic growth of its members collectively. Such networks can have a fixed membership, rotating membership, or constantly changing membership, depending on the specific goals of the network. The idea is to increase the position of members in the market. Participants in these networks will focus on recruiting, pooling knowledge and resources, and researching markets to discover economic opportunities.
Many industries are based on an economic network, particularly starting with the industrial revolution and the emphasis on national economies around the world. These networks arose in direct response to efficiency concerns resulting from ever-larger and less-personal economies. As networks could collectively provide products and services, this trend continued into the 21st century in order to mitigate the effects of a large economic structure, encompassing industries and networks of all sizes, from individuals to nations, in response to the globalized economy. Information has become the economy’s most valuable and central asset, and economic networks are often formed to gather this information, share it, and respond to it.
While a collective economic network such as the Association of Southeast Asian Nations (ASEAN) can benefit substantially, individuals can benefit as well. The benefits to individuals, however, depend very much on the network of connections between these individuals. Network structure often determines the outcome of possible economic relationships, often determining how much information is exchanged and for what purposes. Other effects of network structure include exchanges of goods and services and exchanges of financial resources. Despite the importance of structure in an economic network, the development of theory and methods to analyze these structures often lacks, being fundamental at best.
Yet modern economic systems consistently tend toward economic networks. Creating a global system, these networks continually interact with each other through interdependencies of knowledge and actions. Through these interdependencies, however, these networks can buckle when exposed to distrust, lack of transparency, and pairing of banking and investment actions. Economic networks amplify the impact of these exposures and risks, including economic failures and opportunistic actions designed to take advantage of rather than benefit the network. Due to these factors, it is believed that research focused on optimizing the structure of economic networks is essential for the objectives of establishing economic sustainability and ensuring system stability.
Asset Smart.
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