Big Data Analytics

Connectors and Hubs – insights from inter-firm transactions data

Companies are the backbone of a local economy. In addition to supporting local employment, they have two key roles. Firstly, they bring in important funds from outside the region by the sale of goods and services to clients in other regions. Secondly, they help with the circulation of money within the region through their interaction with other local companies. The injection and circulation of money are two key mechanisms for ensuring regional economic growth and sustainability.

Using Teikoku Databank’s inter-firm transactions data it is possible to construct a visual representation of the inter-firm trading network of companies across Japan. The trading relationship along with the magnitude of the transaction allows companies to be distinguished as those that are predominantly outward facing and companies that are inward facing.

Connector companies

If a company has greater levels of sales outside the region than from within the region, it is called a ‘connector company’. (See diagram below). These outward-facing ‘connector companies’ have an important role in bringing in important funds from outside the region and thereby increasing the size of the local economy.

Hub companies

On the other hand, if a company purchases more goods and services from within the region compared to outside the region, it is called a ‘hub company’. These predominantly inward facing ‘hub companies’ have an important role in distributing essential funds to other companies in the region and thereby helping with the circulation of money within the region.

These two company types, i.e. connector companies, and hub companies, react and transmit a shock within a regional economy in different ways, and therefore have important implications when studying the transmission channels of an economic shock.