Detecting vulnerability to foreign demand and supply: firm-level evidence from Italy

This paper delves into the vulnerability of Italian firms to foreign demand and supply. It introduces a novel, dual indicator of vulnerability to imports and exports, identifying the most vulnerable production segments, along with the countries, products and sectors involved. We evaluate vulnerability focusing on the product and geographical concentration of firms' transactions and on firms’ level of engagement in international trade, measured by export propensity (export-to-turnover ratio) and import incidence (import-to-intermediate costs ratio). Regarding import vulnerability, also the type of imported products, identifying "Foreign Dependent Products" (FDPs), is considered. Our findings show that a small number of Italian firms are vulnerable to foreign demand and supply, although they account for a non-negligible shares of total value added and trade, with a clear sectoral heterogeneity. United States and Germany emerge as the countries towards whose demand Italian firms are mostly vulnerable, due to a higher product concentration and a higher geographical concentration of export, respectively. On the import side, Italian firms are mainly vulnerable towards Germany and China, because of geographical concentration of import but with a poor role of FDPs (especially for China).