The transmission of foreign shocks to the Estonian production network

Andrew Green, Louise Guillouet and Guy Lalanne

No 2025/12, OECD Science, Technology and Industry Working Papers from OECD Publishing

Abstract: Supply chain resilience is a key topic for industrial policymakers, generating demand for rigorous evidence. This paper uses a unique set of firm-to-firm transaction data – Estonian value-added tax data – to provide new empirical estimates for a key concern for policy makers: the domestic propagation of a foreign shock to the supply chain. This paper uses the early Covid-19 lockdowns in China as a quasi-random supply shock to Estonian importers and then measures its propagation through the domestic production network. The difference-in-differences identification strategy captures a substantial negative shock to importers (-6% on imports, -6% on domestic sales, -2% on domestic purchases) which is further propagated downstream to their domestic buyers (-3% on purchases, -5% on sales) and to their domestic suppliers (-7% on sales, -4% on purchases). Firms that held higher inventories and sourced from a more diverse set of suppliers experienced smaller declines in output suggesting possible mitigation strategies.

Keywords: Diversification; Inventories; Spillovers; Supply Chains; Trade Shocks; VAT Data (search for similar items in EconPapers)
JEL-codes: D57 F1 F6 L14 (search for similar items in EconPapers)
Date: 2025-06-27
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Persistent link: https://EconPapers.repec.org/RePEc:oec:stiaaa:2025/12-en

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