Global Sourcing and Firm Inventory during the Pandemic

Hongyong Zhang and Ha Doan

Discussion papers from Research Institute of Economy, Trade and Industry (RIETI)

Abstract: Firms hold inventory to manage input shortages and stockout risks. This is particularly true for firms relying on international supply chains and imported inputs. Using a large-scale quarterly government survey of Japanese manufacturing firms (Q1 2015 – Q2 2021), we examine firm-level inventory adjustments to supply chain shocks and focus on firms that sourced inputs globally during the pandemic. We find that before the pandemic, relative to firms that purchase inputs only domestically, importing firms tend to have larger inventories (inventories over sales) in materials, work-in-process (intermediate goods), and finished goods, even after controlling for firm size. After the pandemic, importers significantly and persistently increased their inventories of intermediate inputs, especially in the case of firms with ex-ante higher import intensity and multinational firms that experienced supply chain disruptions in China. These results suggest the possibility of a shift from just-in-time to just-in-case production during the pandemic. We then discuss the role of inventories as a buffer against input shortages and other factors affecting inventory holdings, such as the prefecture-level severity of COVID-19 infections, industry-level input and output prices, and firm-level financial constraints and uncertainties regarding the economic and business outlook.

Pages: 44 pages
Date: 2023-03
New Economics Papers: this item is included in nep-bec, nep-cfn and nep-int
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Persistent link: https://EconPapers.repec.org/RePEc:eti:dpaper:23018

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