Supply Chain Disruptions and Supplier Capital in U.S. Firms

Ernest Liu, Vladimir Smirnyagin and Aleh Tsyvinski
Additional contact information
Ernest Liu: Princeton University
Vladimir Smirnyagin: University of Virginia
Aleh Tsyvinski: Yale University

No 2402, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: We empirically and quantitatively study the impact of supply chain disruptions on U.S. businesses. Leveraging granular shipment- level data on the universe of U.S. seaborne imports with nearly 200 million observations, we construct a measure of disruptions at the individual firm level for the time period 2013-2023. We document a significant heterogeneity in disruption rates among U.S. public firms, with a notable increase observed in recent years. We introduce a notion of supplier capital and investigate the effect of supply disruptions on firms’ investment decisions. In the data, firms tend to increase investment in supplier capital following the shock, however, financially distressed firms exhibit a much weaker response. We develop a general equilibrium model with heterogeneous firms and with investment in supplier capital. We show that firms’ ability to accumulate supplier capital by making costly investment is an important margin of adjustment in the aftermath of such crises. Financial constraints help account for the heterogeneous treatment effect observed in the data. Two supply chain initiatives proposed by the U.S. government to mitigate disruptions are evaluated. Finally, we document a significant rise in supply disruptions in sectors critical to the U.S. economy and build an index of critical supply disruptions. We show quantitatively that firms relying heavily on imports of critical products experience a much larger decline in output following a disruption shock relative to firms which are not engaged in critical supply chains.

Pages: 63 pages
Date: 2024-05
New Economics Papers: this item is included in nep-bec, nep-cfn, nep-dge and nep-int
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Citations: View citations in EconPapers (2)

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