The Effect of Supply Base Diversification on the Propagation of Shocks

Girish Bahal, Connor Jenkins and Damian Lenzo

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: We study how supply base diversification affects the propagation shocks. We identify exoge-nous shocks with the occurrence of natural disasters in the US from 1978-2017. Affected suppliers reduce their customers’ sales growth by 30% on average. Notably, firms with input purchases spanning many suppliers, geographies, or producers within industries attenuate the transmission of shocks by 60-70%. We then show, causally, that diverse firms mitigate shocks by temporarily substituting towards unaffected suppliers producing similar inputs. A general equilibrium production networks model reveals that aggregate volatility would have been 33%greater from 1978-2017 in a counterfactual without input substitution by diverse firms.

Keywords: production networks; propagation of firm-level shocks; supply-chain diversity (search for similar items in EconPapers)
JEL-codes: D57 E23 E32 L14 (search for similar items in EconPapers)
Pages: 78 pages
Date: 2022-09, Revised 2024-05
New Economics Papers: this item is included in nep-bec and nep-com
References: Add references at CitEc
Citations:

Downloads: (external link)
https://cama.crawford.anu.edu.au/sites/default/fil ... revised_may_2024.pdf Revised Version (application/pdf)
https://cama.crawford.anu.edu.au/sites/default/fil ... l_september_2022.pdf Original Version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2022-60

Access Statistics for this paper

More papers in CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University Contact information at EDIRC.
Bibliographic data for series maintained by Cama Admin ().