The contagion of uncertainty perceptions in value chains: Firm evidence from China

Intensive input–output linkages can lead to interdependent firm behaviors. Amid increasing attention in existing literature to the role of economic uncertainty within value chains, this paper represents one of the first attempts to examine its propagation dynamics through interconnected firms. In a dynamic production network with capital adjustment costs, we show theoretically how economic uncertainty propagates through value chains. Using a text-based firm-level economic uncertainty perception index over two decades in China, we empirically observe economic uncertainty contagion along value chains, with upstream shocks short-lived and associated with pessimistic perceptions and overseas events. Counterfactual analysis shows uncertainty shocks in the finance sector possess a substantial multiplier effect with long persistence. Finally, this paper examines how firms differ in responding to economic uncertainty shocks along value chains, with factors including operating liquidity, innovation, and management consensus. This paper enriches the understanding of value-chain dynamics and delivers actionable insights for corporate practice.