IDEAS home Printed from https://ideas.repec.org/p/een/camaaa/2022-60.html
   My bibliography  Save this paper

The Effect of Supply Base Diversification on the Propagation of Shocks

Author

Listed:
  • Girish Bahal
  • Connor Jenkins
  • Damian Lenzo

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.

Suggested Citation

  • Girish Bahal & Connor Jenkins & Damian Lenzo, 2022. "The Effect of Supply Base Diversification on the Propagation of Shocks," CAMA Working Papers 2022-60, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University, revised May 2024.
    • Handle: RePEc:een:camaaa:2022-60
    as

    Download full text from publisher

    File URL: https://cama.crawford.anu.edu.au/sites/default/files/publication/cama_crawford_anu_edu_au/2024-05/60_2022_bahal_jenkins_lenzo_revised_may_2024.pdf
    File Function: Revised Version
    Download Restriction: no
    File URL: https://cama.crawford.anu.edu.au/sites/default/files/publication/cama_crawford_anu_edu_au/2024-05/60a_2022_bahal_jenkins_lenzo_original_september_2022.pdf
    File Function: Original Version
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    production networks; propagation of firm-level shocks; supply-chain diversity;
    All these keywords.

    JEL classification:

    • D57 - Microeconomics - - General Equilibrium and Disequilibrium - - - Input-Output Tables and Analysis
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:een:camaaa:2022-60. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Cama Admin (email available below). General contact details of provider: https://edirc.repec.org/data/asanuau.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.