IDEAS home Printed from https://ideas.repec.org/p/cam/camdae/1670.html
   My bibliography  Save this paper

Supply Chain Disruptions: Evidence from the Great East Japan Earthquake

Author

Listed:
  • Carvalho, V. M.
  • Nirei, M.
  • Saito, Y. U.
  • Alireza Tahbaz-Salehi, A.

Abstract

Exploiting the exogenous and regional nature of the Great East Japan Earthquake of 2011, this paper provides a systematic quantification of the role of input-output linkages as a mechanism for the propagation and amplification of shocks. We document that the disruption caused by the earthquake and its aftermaths propagated both upstream and downstream supply chains, affecting the direct and indirect suppliers and customers of disaster-stricken firms. We then use our empirical findings to obtain an estimate for the overall macroeconomic impact of the shock by taking these propagation effects into account. We find that the propagation of the shock over input-output linkages can account for a 1.2 percentage point decline in Japan’s gross output in the year following the earthquake. We interpret these findings in the context of a general equilibrium model that explicitly takes the inter-firm input-output linkages into account.

Suggested Citation

  • Carvalho, V. M. & Nirei, M. & Saito, Y. U. & Alireza Tahbaz-Salehi, A., 2016. "Supply Chain Disruptions: Evidence from the Great East Japan Earthquake," Cambridge Working Papers in Economics 1670, Faculty of Economics, University of Cambridge.
  • Handle: RePEc:cam:camdae:1670
    Note: vmpmdc2
    as

    Download full text from publisher

    File URL: http://www.econ.cam.ac.uk/research-files/repec/cam/pdf/cwpe1670.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Vasco Carvalho, 2007. "Aggregate fluctuations and the network structure of intersectoral trade," Economics Working Papers 1206, Department of Economics and Business, Universitat Pompeu Fabra, revised Oct 2010.
    2. Sean Holly & Ivan Petrella, 2012. "Factor Demand Linkages, Technology Shocks, and the Business Cycle," The Review of Economics and Statistics, MIT Press, vol. 94(4), pages 948-963, November.
    3. Andrew T. Foerster & Pierre-Daniel G. Sarte & Mark W. Watson, 2011. "Sectoral versus Aggregate Shocks: A Structural Factor Analysis of Industrial Production," Journal of Political Economy, University of Chicago Press, vol. 119(1), pages 1-38.
    4. Steven J. Davis & John Haltiwanger & Ron Jarmin & Javier Miranda, 2007. "Volatility and Dispersion in Business Growth Rates: Publicly Traded versus Privately Held Firms," NBER Chapters,in: NBER Macroeconomics Annual 2006, Volume 21, pages 107-180 National Bureau of Economic Research, Inc.
    5. Bernard Herskovic, 2015. "Networks in Production: Asset Pricing Implications," 2015 Meeting Papers 378, Society for Economic Dynamics.
    6. Eric Strobl, 2011. "The Economic Growth Impact of Hurricanes: Evidence from U.S. Coastal Counties," The Review of Economics and Statistics, MIT Press, vol. 93(2), pages 575-589, May.
    7. Vasco Carvalho & Xavier Gabaix, 2013. "The Great Diversification and Its Undoing," American Economic Review, American Economic Association, vol. 103(5), pages 1697-1727, August.
    8. Nikolay Osadchiy & Vishal Gaur & Sridhar Seshadri, 2016. "Systematic Risk in Supply Chain Networks," Management Science, INFORMS, vol. 62(6), pages 1755-1777, June.
    9. Julian di Giovanni & Andrei A. Levchenko & Isabelle Mejean, 2018. "The Micro Origins of International Business-Cycle Comovement," American Economic Review, American Economic Association, vol. 108(1), pages 82-108, January.
    10. Xavier Gabaix, 2016. "Power Laws in Economics: An Introduction," Journal of Economic Perspectives, American Economic Association, vol. 30(1), pages 185-206, Winter.
    11. repec:aea:aejmac:v:9:y:2017:i:4:p:254-80 is not listed on IDEAS
    12. Andrew B. BERNARD & Andreas MOXNES & SAITO Yukiko, 2014. "Geography and Firm Performance in the Japanese Production Network," Discussion papers 14034, Research Institute of Economy, Trade and Industry (RIETI).
    13. Nitya Pandalai Nayar & Aaron Flaaen & Christoph Boehm, 2015. "Input Linkages and the Transmission of Shocks: Firm-Level Evidence from the 2011 Tohoku Earthquake," 2015 Meeting Papers 383, Society for Economic Dynamics.
    14. Vasco M. Carvalho, 2014. "From Micro to Macro via Production Networks," Journal of Economic Perspectives, American Economic Association, vol. 28(4), pages 23-48, Fall.
    15. Boyan Jovanovic, 1987. "Micro Shocks and Aggregate Risk," The Quarterly Journal of Economics, Oxford University Press, vol. 102(2), pages 395-409.
    16. NAKAJIMA Kentaro & SAITO Yukiko Umeno & UESUGI Iichiro, 2012. "Localization of Interfirm Transaction Relationships and Industry Agglomeration," Discussion papers 12023, Research Institute of Economy, Trade and Industry (RIETI).
    17. Alberto Cavallo & Eduardo Cavallo & Roberto Rigobon, 2014. "Prices and Supply Disruptions during Natural Disasters," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 60(S2), pages 449-471, November.
    18. Cai, Jing & Szeidl, Adam, 2016. "Interfirm Relationships and Business Performance," CEPR Discussion Papers 11717, C.E.P.R. Discussion Papers.
    19. Steven N. Durlauf, 1993. "Nonergodic Economic Growth," Review of Economic Studies, Oxford University Press, vol. 60(2), pages 349-366.
    20. Noy, Ilan, 2009. "The macroeconomic consequences of disasters," Journal of Development Economics, Elsevier, vol. 88(2), pages 221-231, March.
    21. Brian Tomlin, 2009. "Impact of Supply Learning When Suppliers Are Unreliable," Manufacturing & Service Operations Management, INFORMS, vol. 11(2), pages 192-209, August.
    22. Brian Tomlin, 2006. "On the Value of Mitigation and Contingency Strategies for Managing Supply Chain Disruption Risks," Management Science, INFORMS, vol. 52(5), pages 639-657, May.
    23. Saki Bigio & Jennifer La’O, 2016. "Financial Frictions in Production Networks," Working Papers 2016-67, Peruvian Economic Association.
    24. Yasuyuki Todo & Kentaro Nakajima & Petr Matous, 2015. "How Do Supply Chain Networks Affect The Resilience Of Firms To Natural Disasters? Evidence From The Great East Japan Earthquake," Journal of Regional Science, Wiley Blackwell, vol. 55(2), pages 209-229, March.
    25. Strobl, Eric, 2012. "The economic growth impact of natural disasters in developing countries: Evidence from hurricane strikes in the Central American and Caribbean regions," Journal of Development Economics, Elsevier, vol. 97(1), pages 130-141.
    26. SAITO Yukiko, 2013. "Role of Hub Firms in Geographical Transaction Network," Discussion papers 13080, Research Institute of Economy, Trade and Industry (RIETI).
    27. Nirei, Makoto, 2015. "An interaction-based foundation of aggregate investment fluctuations," Theoretical Economics, Econometric Society, vol. 10(3), September.
    28. Jonathan EATON & Samuel KORTUM & Francis KRAMARZ, 2016. "Firm-to-Firm Trade: Imports, exports, and the labor market," Discussion papers 16048, Research Institute of Economy, Trade and Industry (RIETI).
    29. Robert C. Johnson, 2014. "Trade in Intermediate Inputs and Business Cycle Comovement," American Economic Journal: Macroeconomics, American Economic Association, vol. 6(4), pages 39-83, October.
    30. Raddatz, Claudio, 2009. "The wrath of God : macroeconomic costs of natural disasters," Policy Research Working Paper Series 5039, The World Bank.
    31. David Baqaee, 2016. "Cascading Failures in Production Networks," 2016 Meeting Papers 402, Society for Economic Dynamics.
    32. Saki Bigio, 2013. "Financial Frictions in Production Networks," 2013 Meeting Papers 121, Society for Economic Dynamics.
    33. Vasco M. Carvalho, 2014. "From Micro to Macro via Production Networks," Working Papers 793, Barcelona Graduate School of Economics.
    34. Xavier Gabaix, 2011. "The Granular Origins of Aggregate Fluctuations," Econometrica, Econometric Society, vol. 79(3), pages 733-772, May.
    35. Dupor, Bill, 1999. "Aggregation and irrelevance in multi-sector models," Journal of Monetary Economics, Elsevier, vol. 43(2), pages 391-409, April.
    36. repec:wly:iecrev:v:57:y:2016:i::p:1335-1370 is not listed on IDEAS
    37. Glenn Magerman & Emmanuel Dhyne & Stela Rubínova, 2015. "The Belgian production network 2002-2012," Working Paper Research 288, National Bank of Belgium.
    38. Glenn Magerman & Karolien De Bruyne & Emmanuel Dhyne & Jan Van Hove, 2016. "Heterogeneous firms and the micro origins of aggregate fluctuations," Working Paper Research 312, National Bank of Belgium.
    39. Takaaki Ohnishi & Hideki Takayasu & Misako Takayasu, 2010. "Network motifs in an inter-firm network," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 5(2), pages 171-180, December.
    40. Jean-Noël Barrot & Julien Sauvagnat, 2016. "Input Specificity and the Propagation of Idiosyncratic Shocks in Production Networks," The Quarterly Journal of Economics, Oxford University Press, vol. 131(3), pages 1543-1592.
    41. Mary Amiti & David E. Weinstein, 2013. "How Much do Idiosyncratic Bank Shocks Affect Investment? Evidence from Matched Bank-Firm Loan Data," NBER Working Papers 18890, National Bureau of Economic Research, Inc.
    42. David Simchi-Levi & William Schmidt & Yehua Wei & Peter Yun Zhang & Keith Combs & Yao Ge & Oleg Gusikhin & Michael Sanders & Don Zhang, 2015. "Identifying Risks and Mitigating Disruptions in the Automotive Supply Chain," Interfaces, INFORMS, vol. 45(5), pages 375-390, October.
    43. Saito, Yukiko Umeno & Watanabe, Tsutomu & Iwamura, Mitsuru, 2007. "Do larger firms have more interfirm relationships?," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 383(1), pages 158-163.
    44. Horvath, Michael, 2000. "Sectoral shocks and aggregate fluctuations," Journal of Monetary Economics, Elsevier, vol. 45(1), pages 69-106, February.
    45. Kaoru Hosono & Daisuke Miyakawa & Taisuke Uchino & Makoto Hazama & Arito Ono & Hirofumi Uchida & Iichiro Uesugi, 2016. "Natural Disasters, Damage To Banks, And Firm Investment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 57, pages 1335-1370, November.
    46. repec:hrv:faseco:34651705 is not listed on IDEAS
    47. Long, John B, Jr & Plosser, Charles I, 1983. "Real Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 39-69, February.
    48. Mary Amiti & David E. Weinstein, 2013. "How much do bank shocks affect investment? Evidence from matched bank-firm loan data," Staff Reports 604, Federal Reserve Bank of New York.
    49. Molly K. SCHNELL & David E. WEINSTEIN, 2012. "Evaluating the Economic Response to Japan's Earthquake," Policy Discussion Papers 12003, Research Institute of Economy, Trade and Industry (RIETI).
    50. Enghin Atalay, 2017. "How Important Are Sectoral Shocks?," American Economic Journal: Macroeconomics, American Economic Association, vol. 9(4), pages 254-280, October.
    51. SAITO Yukiko, 2012. "The Impact of the Great East Japan Earthquake on Companies in the Non-affected Areas: Structure of the inter-company network of supply chains and its implication (Japanese)," Discussion Papers (Japanese) 12020, Research Institute of Economy, Trade and Industry (RIETI).
    52. Nirei, Makoto, 2006. "Threshold behavior and aggregate fluctuation," Journal of Economic Theory, Elsevier, vol. 127(1), pages 309-322, March.
    53. Michael Horvath, 1998. "Cyclicality and Sectoral Linkages: Aggregate Fluctuations from Independent Sectoral Shocks," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(4), pages 781-808, October.
    54. repec:bla:revinw:v:60:y:2014:i::p:s449-s471 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cam:camdae:1670. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jake Dyer). General contact details of provider: http://www.econ.cam.ac.uk/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.