Inputs in geopolitical distress: a risk assessment based on micro data

Using customs and balance sheet data for Italy, we identify foreign-dependent products (FDPs) and quantify the effect of any disruptions to those products. Our framework allows us to assess how geoeconomic fragmentation affects value added at different levels of aggregation. Our baseline calibration suggests that a reduction in the imports of FDPs from high geopolitical risk countries would result in a 2 per cent drop in GDP, with sizable heterogeneity across firms, regions, and sectors. Our findings highlight that the short-term costs of supply disruptions for critical inputs can be substantial, especially when firms cannot easily substitute away from those products.