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Input Linkages and the Transmission of Shocks: Firm-Level Evidence from the 2011 Tohoku Earthquake

Author

Listed:
  • Christoph E. Boehm
  • Aaron Flaaen
  • Nitya Pandalai-Nayar

Abstract

Using novel firm-level microdata and leveraging a natural experiment, this paper provides causal evidence for the role of trade and multinational firms in the cross-country transmission of shocks. Foreign multinational affiliates in the U.S. exhibit substantial intermediate input linkages with their source country. The scope for these linkages to generate cross-country spillovers in the domestic market depends on the elasticity of substitution with respect to other inputs. Using the 2011 Tohoku earthquake as an exogenous shock, we estimate this elasticity for those firms most reliant on Japanese imported inputs: the U.S. affiliates of Japanese multinationals. These firms suffered large drops in U.S. output in the months following the shock, roughly one-for-one with the drop in imports and consistent with a Leontief relationship between imported and domestic inputs. Structural estimates of the production function for these firms yield disaggregated production elasticities that are similarly low. Our results suggest that global supply chains are sufficiently rigid to play an important role in the cross-country transmission of shocks.

Suggested Citation

  • Christoph E. Boehm & Aaron Flaaen & Nitya Pandalai-Nayar, 2015. "Input Linkages and the Transmission of Shocks: Firm-Level Evidence from the 2011 Tohoku Earthquake," Working Papers 15-28, Center for Economic Studies, U.S. Census Bureau.
  • Handle: RePEc:cen:wpaper:15-28
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    References listed on IDEAS

    as
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    Cited by:

    1. Nitya Pandalai Nayar & Aaron Flaaen & Christoph Boehm, 2016. "Multinationals, Offshoring and the Decline of U.S. Manufacturing," 2016 Meeting Papers 584, Society for Economic Dynamics.
    2. Vasco M. CARVALHO & NIREI Makoto & SAITO Yukiko, 2014. "Supply Chain Disruptions: Evidence from the Great East Japan Earthquake," Discussion papers 14035, Research Institute of Economy, Trade and Industry (RIETI).
    3. Daron Acemoglu & Ufuk Akcigit & William Kerr, 2016. "Networks and the Macroeconomy: An Empirical Exploration," NBER Macroeconomics Annual, University of Chicago Press, vol. 30(1), pages 273-335.
    4. Glenn Magerman & Karolien De Bruyne & Emmanuel Dhyne & Jan Van Hove, 2016. "Heterogeneous Firms and the Micro Origins of Aggregate Fluctuations," Working Papers ECARES ECARES 2016-35, ULB -- Universite Libre de Bruxelles.
    5. Andrew B. Bernard & Andreas Moxnes, 2018. "Networks and Trade," CEP Discussion Papers dp1541, Centre for Economic Performance, LSE.
    6. 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.
    7. 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.
    8. David Baqaee & Emmanuel Farhi, 2017. "The Macroeconomic Impact of Microeconomic Shocks: Beyond Hulten's Theorem," Working Paper 482151, Harvard University OpenScholar.
    9. repec:eee:dyncon:v:83:y:2017:i:c:p:232-269 is not listed on IDEAS
    10. Kurz, Christopher & Senses, Mine Z., 2016. "Importing, exporting, and firm-level employment volatility," Journal of International Economics, Elsevier, vol. 98(C), pages 160-175.
    11. Rudolfs Bems & Robert C. Johnson, 2017. "Demand for Value Added and Value-Added Exchange Rates," American Economic Journal: Macroeconomics, American Economic Association, vol. 9(4), pages 45-90, October.
    12. ITO Yukiko, 2017. "Has the Offshore Service Network Been Expanded by Japanese Firms?," Discussion papers 17107, Research Institute of Economy, Trade and Industry (RIETI).
    13. Matteo Fiorini & Mathilde Lebrand, 2016. "The Political Economy of Services Trade Agreements," CESifo Working Paper Series 5927, CESifo Group Munich.
    14. Christopher L. House & Ana-Maria Mocanu & Matthew D. Shapiro, 2017. "Stimulus Effects of Investment Tax Incentives: Production versus Purchases," NBER Working Papers 23391, National Bureau of Economic Research, Inc.
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    16. FUJII Daisuke, 2017. "International Trade and Domestic Production Networks," Discussion papers 17116, Research Institute of Economy, Trade and Industry (RIETI).
    17. Saki Bigio & Jennifer La’O, 2016. "Financial Frictions in Production Networks," Working Papers 2016-67, Peruvian Economic Association.
    18. Francois de Soyres, 2016. "Trade and Interdependence in International Networks," 2016 Meeting Papers 157, Society for Economic Dynamics.
    19. Basile Grassi, 2017. "IO in I-O: Competition and Volatility in Input-Output Networks," 2017 Meeting Papers 1637, Society for Economic Dynamics.
    20. Saki Bigio, 2013. "Financial Frictions in Production Networks," 2013 Meeting Papers 121, Society for Economic Dynamics.
    21. Cheng Chen & Tatsuro Senga & Chang Sun & Hongyong Zhang, 2017. "Firm Expectations and Investment: Evidence from the China-Japan Island Dispute," Working Papers 838, Queen Mary University of London, School of Economics and Finance.
    22. LU Yi & OGURA Yoshiaki & TODO Yasuyuki & ZHU Lianming, 2017. "Supply Chain Disruptions and Trade Credit," Discussion papers 17054, Research Institute of Economy, Trade and Industry (RIETI).
    23. Dominik Boddin, 2016. "The Role of Newly Industrialized Economies in Global Value Chains," IMF Working Papers 16/207, International Monetary Fund.
    24. repec:sls:ipmsls:v:32:y:2017:4 is not listed on IDEAS
    25. Dominick Bartelme & Yuriy Gorodnichenko, 2015. "Linkages and Economic Development," NBER Working Papers 21251, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    Multinational Firms; International Business Cycles; Elasticity of Substitution;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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