Spillovers through the Supply Chains: How Large Plant Openings Affect Local Supplier Plants

This study investigates how becoming a supplier to a newly opened large plant affects the subsequent performance of small incumbent plants. To address this question, we integrate detailed plant-level production data, records of large-plant openings, and supply-chain information. We adopt the framework developed by Callaway and Sant’Anna (2021) and exploit the spatial distribution of new entrants to construct a quasi-experimental setting, comparing firms that start supplying nearby new entrants with those that do not. Our event-study estimates reveal that while local first-time supplier plants benefit significantly—both statistically and economically—from large plant openings, never-supplier plants in the geographical proximity experience negative impacts. We interpret these opposite effects arise from intensified regional competition, driven by the growth of newly appointed suppliers. From a policy perspective, these findings highlight the importance of facilitating effective matches between newly opened large plants and local first-time suppliers, as well as providing support to never-supplier firms that find themselves disadvantaged by increased competition.