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The bullwhip effect and the Great Trade Collapse

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  • Veronika Zavacka

    ()
    (EBRD)

Abstract

This paper demonstrates the bullwhip effect in a simple framework and tests its predictions using US industry level import data. I show that after final goods suffer a demand shock, upstream suppliers face a greater volatility of sales than their downstream counterparts and might even lose sales temporarily. The effect of the shock is magnified when the inventory-to-sales ratio of the industry is high. The impact can turn non-monotonic, that is, the volatility of a downstream production stage might exceed the volatility of its suppliers, if the upstream producers operate in networks of chains with uncorrelated demands. I show empirically that, in line with the bullwhip effect, the volatility of US imports after the Lehman shock is higher for upstream industries. In addition, upstream products are more likely to drop out of trading completely. Most of the dropouts, however, are temporary and about 90 per cent of products return to trading within two years after the shock. Those imports that do not return are more likely to have been traded for a shorter period and in smaller quantities pre-crisis.

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Bibliographic Info

Paper provided by European Bank for Reconstruction and Development, Office of the Chief Economist in its series Working Papers with number 148.

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Length: 47 pages
Date of creation: Sep 2012
Date of revision:
Publication status: Published in Working papers 148, European Bank for Reconstruction and Development
Handle: RePEc:ebd:wpaper:148

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Related research

Keywords: trade collapse; supply chains; bullwhip effect;

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  1. Agnès Bénassy-Quéré & Yvan Decreux & Lionel Fontagné & David Khoudour-Castéras, 2009. "Economic Crisis and Global Supply Chains," Working Papers 2009-15, CEPII research center.
  2. George Alessandria & Joseph P. Kaboski & Virgiliu Midrigan, 2011. "US Trade and Inventory Dynamics," American Economic Review, American Economic Association, vol. 101(3), pages 303-07, May.
  3. George Alessandria & Joseph P. Kaboski & Virgiliu Midrigan, 2010. "The great trade collapse of 2008-2009: an inventory adjustment?," Working Papers 10-18, Federal Reserve Bank of Philadelphia.
  4. Paul Brenton & Christian Saborowski & Erik von Uexkull, 2010. "What Explains the Low Survival Rate of Developing Country Export Flows?," World Bank Economic Review, World Bank Group, vol. 24(3), pages 474-499, December.
  5. Carlo Altomonte & Filippo Di Mauro & Gianmarco I. P. Ottaviano & Armando Rungi & Vincent Vicard, 2012. "Global Value Chains During the Great Trade Collapse: A Bullwhip Effect?," CEP Discussion Papers dp1131, Centre for Economic Performance, LSE.
  6. Andrew B. Bernard & J. Bradford Jensen & Stephen Redding & Peter K. Schott, 2009. "The Margins of US Trade," CEP Discussion Papers dp0906, Centre for Economic Performance, LSE.
  7. Besedes, Tibor & Prusa, Thomas J., 2006. "Product differentiation and duration of US import trade," Journal of International Economics, Elsevier, vol. 70(2), pages 339-358, December.
  8. Bricongne, J-C. & Fontagné, L. & Gaulier, G. & Taglioni, D. & Vicard, V., 2009. "Firms and the global crisis: French exports in the turmoil," Working papers 265, Banque de France.
  9. Rudolfs Bems & Robert C Johnson & Kei-Mu Yi, 2010. "Demand Spillovers and the Collapse of Trade in the Global Recession," IMF Economic Review, Palgrave Macmillan, vol. 58(2), pages 295-326, December.
  10. Elhanan Helpman & Paul Krugman, 1987. "Market Structure and Foreign Trade: Increasing Returns, Imperfect Competition, and the International Economy," MIT Press Books, The MIT Press, edition 1, volume 1, number 026258087x, December.
  11. Escaith, Hubert & Lindenberg, Nannette & Miroudot, Sébastien, 2010. "International Supply Chains and Trade Elasticity in Times of Global Crisis," MPRA Paper 20478, University Library of Munich, Germany.
  12. Pol Antras & Davin Chor & Thibault Fally & Russell Hillberry, 2012. "Measuring the Upstreamness of Production and Trade Flows," American Economic Review, American Economic Association, vol. 102(3), pages 412-16, May.
  13. Tibor Besedes & Thomas Prusa, 2006. "Ins, outs, and the duration of trade," Canadian Journal of Economics, Canadian Economics Association, vol. 39(1), pages 266-295, February.
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Cited by:
  1. Asel Isakova & Zsoka Koczan & Alexander Plekhanov, 2013. "How much do tariffs matter? Evidence from the customs union of Belarus, Kazakhstan and Russia," Working Papers 154, European Bank for Reconstruction and Development, Office of the Chief Economist.

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