Input Linkages and the Transmission of Shocks: Firm-Level Evidence from the 2011 Tohōku Earthquake

Abstract

PRELIMINARY AbstractUsing novel firm-level microdata and leveraging a natural experiment, this paper provides causal evidence for the role of trade and multinational firms in the crosscountry transmission of shocks. Foreign multinational affiliates in the U.S. exhibit substantial intermediate input linkages with their source country. The scope for these linkages to generate cross-country spillovers in the domestic market depends on the elasticity of substitution with respect to other inputs. Using the 2011 Tōhoku earthquake as an exogenous shock, we estimate this elasticity for those firms most reliant on Japanese imported inputs: the U.S. affiliates of Japanese multinationals. These firms suffer large drops in U.S. output in the months following the shock, roughly proportional to the drop in imports and consistent with a Leontief relationship between imported and domestic inputs. Structural estimates of the production function for these firms yield disaggregated production elasticities that are similarly low. Our estimates suggest that global supply chains are sufficiently rigid to play an important role in the cross-country transmission of shocks.JEL Codes: F10, F23, F44, E32

The Micro Origins of International Business-Cycle Comovement

“…This paper's contribution is to examine the trade-comovement relationship at the firm level, and to derive the aggregate implications based on micro-level estimates. In this respect, it shares some features with recent papers such as Boehm et al (2015), Senses (2016), andCravino andLevchenko (2016), who perform related exercises.…”

Modeling loss-propagation in the global supply network: The dynamic agent-based model acclimate

“…All commodity inputs are perfect complements and therefore substitution is not possible among theman assumption that is supported by a recent study by Boehm et al (2015) suggesting that elasticities of substitution are very low in the months following a disaster. Thus, in the case of supply limitation, the input commodity with the lowest availability limits productive capacity.…”

“…However, often in disaster impact studies only the local economy of the affected region is modeled in detail. Since the supply chain network is globally integrated (Lenzen et al, 2013), and value added chains span the globe (Boehm et al, 2015), this limits the potential of these studies to describe the impacts that local disasters have on the global economy.…”

“…However, at least in some sectors, high product specialization renders it more difficult for firms to switch to new suppliers in the short-term. Empirical evidence for this hypothesis is, for instance, provided by a study by Boehm et al (2015) on firms in the US having strong import dependencies to the Japanese economy. The authors found production losses after the 2011 Tōhoku earthquake to be similar to the drop in imports suggesting that firms were not able to replace import commodities by switching to new suppliers in the short-term, i. e., in the months following the disaster.…”

The UK's Participation in Global Value Chains and Its Implications for Post‐Brexit Trade Policy

“…A second factor that will determine the effect of tariff reductions on input costs is the degree to which firms pass on costs to end consumers rather than increasing their markups. De Loecker et al (2016) study the pass-through of tariff reductions to firm margins in the context of trade liberalisation in India 20 Boehm, Flaaen and Pandalai-Nayar, 2015;Barrot and Sauvagnat, 2016. over the period 1989-2003, finding that average tariff reductions of 62 per cent led to an average reduction in firms' marginal costs of 31 per cent. However, because firms also raised their markups (by 13 per cent on average), these cost reductions only translated into an 18 per cent reduction in output prices.…”