The bullwhip effect and the Great Trade Collapse
AbstractThis 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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by European Bank for Reconstruction and Development, Office of the Chief Economist in its series Working Papers with number 148.
Length: 47 pages
Date of creation: Sep 2012
Date of revision:
Publication status: Published in Working papers 148, European Bank for Reconstruction and Development
Contact details of provider:
Postal: One Exchange Square, London EC2A 2JN
Web page: http://www.ebrd.com/pages/research/publications/workingpapers.shtml
More information through EDIRC
trade collapse; supply chains; bullwhip effect;
Find related papers by JEL classification:
- F15 - International Economics - - Trade - - - Economic Integration
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
- L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-10-27 (All new papers)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Brenton, Paul & Saborowski, Christian & von Uexkull, Erik, 2009.
"What explains the low survival rate of developing country export flows ?,"
Policy Research Working Paper Series
4951, The World Bank.
- 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.
- 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.
- Altomonte, C. & Di Mauro, F. & Ottaviano, G. & Rungi, A. & Vicard, V., 2012.
"Global Value Chains during the Great Trade Collapse: A Bullwhip Effect?,"
364, Banque de France.
- Altomonte, Carlo & di Mauro, Filippo & Ottaviano, Gianmarco & Rungi, Armando & Vicard, Vincent, 2012. "Global value chains during the great trade collapse: a bullwhip effect?," Working Paper Series 1412, European Central Bank.
- 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.
- Pol Antràs & Davin Chor & Thibault Fally & Russell Hillberry, 2012.
"Measuring the Upstreamness of Production and Trade Flows,"
NBER Working Papers
17819, National Bureau of Economic Research, Inc.
- 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.
- Antràs, Pol & Chor, Davin & Fally, Thibault & Hillberry, Russell, 2012. "Measuring the Upstreamness of Production and Trade Flows," CEPR Discussion Papers 8839, C.E.P.R. Discussion Papers.
- 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.
- 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.
- 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.
- 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.
- Kei-Mu Yi & Rudolfs Bems & Robert C. Johnson, 2010. "Demand Spillovers and the Collapse of Trade in the Global Recession," IMF Working Papers 10/142, International Monetary Fund.
- Bricongne, J-C. & Fontagné, L. & Gaulier, G. & Taglioni, D. & Vicard, V., 2009.
"Firms and the global crisis: French exports in the turmoil,"
265, Banque de France.
- Bricongne, Jean-Charles & Fontagné, Lionel & Gaulier, Guillaume & Taglioni, Daria & Vicard, Vincent, 2012. "Firms and the global crisis: French exports in the turmoil," Journal of International Economics, Elsevier, vol. 87(1), pages 134-146.
- Bricongne, Jean-Charles & Fontagné, Lionel & Gaulier, Guillaume & Taglioni, Daria & Vicard, Vincent, 2010. "Firms and the global crisis: French exports in the turmoil," Working Paper Series 1245, European Central Bank.
- 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.
- 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.
- Agnès Bénassy-Quéré & Yvan Decreux & Lionel Fontagné & David Khoudour-Castéras, 2009. "Economic Crisis and Global Supply Chains," Working Papers 2009-15, CEPII research center.
- 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.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Olga Lucas).
If references are entirely missing, you can add them using this form.